Calculate the Economic Order Quantity from the following information: (a) Annual consumption 120 units, (b) Cost of placing and receiving an order Rs.20, (c) Price per unit Rs.100, (d) Storage cost as percentage of average inventory 12%.

Question

Accepted Answer

Given:
- Annual consumption (D) = 120 units
- Cost of placing and receiving an order (P) = ₹20
- Price per unit = ₹100
- Storage cost = 12% of average inventory

**Step 1: Calculate Inventory Carrying Cost (C)**
C = 12% of Price per unit = 12% × ₹100 = ₹12 per unit per year

**Step 2: Calculate EOQ**
EOQ = √((2 × P × D) / C)
= √((2 × 20 × 120) / 12)
= √(4,800 / 12)
= √400
= **20 units**

The Economic Order Quantity is **20 units**.