Economic Order Quantity (EOQ) Calculation¶
Illustration 2.1¶
Calculate the economic order quantity for material M. The following details are furnished:
- Annual usage = 90,000 units
- Buying cost per order = Rs 10
- Cost of carrying inventory = 10% of cost
- Cost per unit = Rs 50
Solution:
The formula for EOQ is:
Where:
= Annual consumption = Buying Cost = Cost per unit = Storage/Carrying Cost
Calculating EOQ:
Illustration 2.13¶
Given,
- Cost of placing order or Buying Cost (B) = Rs 100
- Purchase price of raw material (C) = Rs 10
- Re-order period = 4-8 weeks
- Consumption of Raw materials = 100-450 Kg per week
- Annual consumption (A) = 275 x 52 = 14,300 Kg
- Avg consumption of RM = 275 Kg
- Carrying cost (S) = 20% p.a.
Calculate:
i) Re-order quantity or EOQ
ii) Re-order Level
Illustration 2.3¶
Given,
- Monthly consumption = 2,500 units
- Annual consumption (A) = 2,500 x 12 = 30,000 units
-
Cost of placing order or Buying cost (B) = Rs 150
-
Cost per unit (C) = Rs 20
- Re-order period = 4-8 weeks
- Minimum consumption of RM = 100 units
- Avg consumption of RM = 275 units
- Carrying cost (S) = 20% p.a.
Calculate:
i) Re-order Quantity or EOQ
ii) Re-order level
Calculate the average consumption to find the maximum level:
Now calculate the Re-order Level:
Illustration 2.5¶
Given,
- Monthly consumption = 1500 units
- Annual consumption (A) = 1500 x 12 = 18,000 units
- Cost per order or Buying cost (B) = Rs 150
- Cost per unit (C) = Rs 27
- Carrying cost (S) = 20%
Calculate EOQ:
$$ \text{EOQ} = \sqrt{\frac{2 \times 18
,000 \times 150}{5.4}} $$
Calculate the number of orders per year:
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