X Ltd. Produces a product which has an annual demand of 48000 units. The product requires a component beta which is produced at Rs.20. For every finished product, one unit of the component is required. The ordering cost is Rs.120 per order and the holding cost is 10% p.a. Execute EOQ Calculation.
To calculate the Economic Order Quantity (EOQ), we need the following information:
Annual Demand (D) = 48000 units
Cost per Order (S) = Rs.120
Cost per Unit (C) = Rs.20
Holding Cost Rate (H) = 10% (0.10)
The formula to calculate EOQ is:
EOQ = √((2DS)/H)
Let's plug in the values into the formula:
EOQ = √((2 * 48000 * 120) / 0.10)
EOQ = √(11520000 / 0.10)
EOQ = √115200000
EOQ ≈ 3399.37
Therefore, the Economic Order Quantity (EOQ) for ordering component beta is approximately 3399 units.