1. From the figures given below, calculate Economic Order Quantity and a number of orders to be placed per year.
Total consumption of material per year 10,000 kg
Buying cost per order Rs.50
Unit cost of material Rs.2 per Kg
Carrying and storage cost 8% on average inventory
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To calculate the Economic Order Quantity and the number of orders to be placed per year, we need to use the following formulas and steps:
1. Economic Order Quantity (EOQ) Formula:
EOQ = sqrt((2 * total consumption * buying cost per order) / carrying and storage cost)
2. Number of Orders per Year Formula:
Number of Orders = total consumption / EOQ
Now let's calculate the Economic Order Quantity and the number of orders to be placed per year using the given figures:
Total consumption of material per year = 10,000 kg
Buying cost per order = Rs. 50
Unit cost of material = Rs. 2 per kg
Carrying and storage cost = 8% on average inventory
Step 1: Calculate the Average Inventory:
Average Inventory = EOQ / 2
Step 2: Calculate the Carrying and Storage Cost:
Carrying and Storage Cost = average inventory * carrying and storage cost
Step 3: Calculate the EOQ:
EOQ = sqrt((2 * total consumption * buying cost per order) / carrying and storage cost)
Step 4: Calculate the Number of Orders per Year:
Number of Orders = total consumption / EOQ
Let's calculate each step:
Step 1: Calculate the Average Inventory:
EOQ = 10,000 / Number of Orders
Step 2: Calculate the Carrying and Storage Cost:
Average Inventory = EOQ / 2
Carrying and Storage Cost = Average Inventory * carrying and storage cost
Step 3: Calculate the EOQ:
EOQ = sqrt((2 * total consumption * buying cost per order) / Carrying and Storage Cost)
Step 4: Calculate the Number of Orders per Year:
Number of Orders = total consumption / EOQ
Now, substitute the given values in the formulas and calculate the EOQ and the number of orders to be placed per year.