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EOQ Calculation and Inventory Costs Analysis

The document outlines the calculation of the Economic Order Quantity (EOQ) based on provided data including monthly demand, ordering cost, and carrying cost rate. The EOQ is calculated to be approximately 4,108 units, resulting in about 18 orders per year with a time interval of approximately 20.82 days between orders. The total inventory cost, combining both ordering and carrying costs, is estimated at approximately 23,649.79.

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mahekhirawat29
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9 views1 page

EOQ Calculation and Inventory Costs Analysis

The document outlines the calculation of the Economic Order Quantity (EOQ) based on provided data including monthly demand, ordering cost, and carrying cost rate. The EOQ is calculated to be approximately 4,108 units, resulting in about 18 orders per year with a time interval of approximately 20.82 days between orders. The total inventory cost, combining both ordering and carrying costs, is estimated at approximately 23,649.79.

Uploaded by

mahekhirawat29
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Solution Steps: Step 1: Provided Data - Monthly Demand = 6,000 units - Ordering Cost = ■ 675 per

order - Carrying Cost Rate = 16% - Cost per unit = ■ 36 - Carrying Cost per unit per year = 16% of
36 = ■ 5.76 - Monthly Demand × 12 = Annual Demand = 72,000 units Step 2: EOQ Calculation
EOQ = √((2 × Annual Demand × Ordering Cost) / Carrying Cost) EOQ = √((2 × 72,000 × 675) /
5.76) EOQ = √(97,200,000 / 5.76) EOQ = √(16,875,000) EOQ ≈ 4108 units Step 3: Number of
Orders per year = Annual Demand / EOQ = 72,000 / 4,108 ≈ 17.53 orders (≈ 18 orders) Step 4:
Time between two orders = 365 days / 17.53 ≈ 20.82 days Step 5: Total Ordering Cost = Number of
Orders × Ordering Cost = 17.53 × ■ 675 ≈ ■ 11,822.75 Step 6: Total Carrying Cost = (EOQ / 2) ×
Carrying Cost per unit per year = (4108 / 2) × 5.76 = 2054 × 5.76 ≈ ■ 11,827.04 Step 7: Total
Inventory Cost = Total Ordering Cost + Total Carrying Cost ≈ 11,822.75 + 11,827.04 ≈ ■ 23,649.79
Final Answers: • EOQ ≈ 4,108 units • Number of orders per year ≈ 18 • Time between orders ≈
20.82 days • Total ordering cost ≈ ■ 11,822.75 • Total carrying cost ≈ ■ 11,827.04 • Total inventory
cost ≈ ■ 23,649.79

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