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4 A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity.
£15/unit
Information regarding stocks is given below: Purchase price £15
Fixed cost per order £200
HOLDING COST 8% of the purchase price per annum
ANNUAL DEMAND 12,000 units
Current annual total stock costs are £183,000, being the total of the purchasing, ordering and holding costs of product
Calculate the revised annual total stock costs for product X and so establish the diff compared to the current ordering policy
Ans is 600
My ans
12000×15+(12000/1000×200)+(1000/2×1.2)=183000
But in the ans they have used EOQ as 2000
I.e
12000×15+12000/2000×200+2000/2×1.2
182400
1. WHY EOQ is considered 2000 when in question its mentioned 1000They currently order 1,000 each time, but the question asks you to calculate the EOQ to see what is the optimal order quantity.
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