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The cost placing an order is $68 and the cost of holding an item is 10%per annum of its purchase price. The annual demand for the stock item is 3125 and each unit is sold for $260. What is the EOQ(Economic Order Quantity)?
EOQ= 2CoD/Ch (underroot)
where co is cost of redering,D is for demand and ch is cost of holding
so,put the values
= 2 * 68 *3125/ 6.8
= 425000/6.8
=62500
after under root
=250 answer
correct me if im wrongNo, shujaatt.. its a wrong answer..
the answer is 128 units.. bt, i don’t know..how do we arrive at this answer.ok i think i got it.
only mistake i made is putting 6.8 above in the formula instead of 26 which is 10% of 260
425000/26
=16346.15
now take off the under root
we get 127.85 which is the very nearest figure to 128
so 128 is the right answerYeah, that’s right.. Bt, while calculating the purchase price.. why the Demand is nt taken?
Well, sometimes it is calculated with the purchase price per unit.. i.e .. Purchase price= Demand*Purchase price per unit.
i thin u were confused,
in EOQ formula, ch=cost of holding of one unit
here in the question, ch=10% of purchase price( of one unit).Purchase price= Demand*Purchase price per unit.
this formula, is to calculate total purchase price in one year. this we have to use only if discount are given for certain amt of purchase.
then we have to find separately, purchase price, cost of holding , cost of ordering .all that would be for one year.then compare .more examples you do, it will be clear.
@Vipin Yes, i get it!
Thankyou for clearing my doubt..
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