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A retailer has a steady demand for 600 units a year. Each unit costs the retailer RM20. The
costs of ordering are RM100, regardless of the size of the order. The cost of holding a unit in
stock is 40 per cent of its value per year. What order size will minimise total inventory (stock)
cost, and what is the minimum total annual stock cost?ANS: EOQ IS 123 UNITS, Total inventory is 12979.81
But i cant calculate this ans
You use the formula given on the formula sheet in the exam.
The EOQ is the square root of (2 x D x Co) / Ch, where D = 600, Co = 100, and Ch = 40% x 20 = 8. If you put those in the formula then the EOQ = 122.47.
The order cost over the year is (600/122.47) x 100 = 489.92
The holding cost over the year is 122.47/2 x 8 = 489.88
The purchase cost over the year is 600 x 20 = 12,000The total of the three is 12,979.80
This is all explained in my free lectures on inventory. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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