Solved Examples: Economic Ordering Quantity | Cost Accounting - B Com PDF Download

 Page 1


Problems on Economic Ordering Quantity 
1.  Calculate the economic order quantity for material M. The following details are furnished:
         Annual usage =   90000 units
         Buying cost per order =   Rs. 10
         Cost of carrying inventory =   10% of cost
         Cost per unit = Rs.50
EoQ=
?
v2AB/CxS
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x90,000unitsx10/(50x10%) = 
?
v18,00,000/5
=
?
v3,60,000  = 600 units
 2) From the following information, calculate Economic Order Quantity and the number of orders
to be placed in one quarter of the year.
(a) Quarterly consumption of materials =   2000 kg
(b) Cost of placing one order =   Rs. 50
(c) Cost per unit =   Rs. 40
(d) Storage and carrying cost =   8% of average inventory
EoQ=
?
v2AB/CxS
A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)
B = Buying cost per order
C = Cost per unit
Page 2


Problems on Economic Ordering Quantity 
1.  Calculate the economic order quantity for material M. The following details are furnished:
         Annual usage =   90000 units
         Buying cost per order =   Rs. 10
         Cost of carrying inventory =   10% of cost
         Cost per unit = Rs.50
EoQ=
?
v2AB/CxS
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x90,000unitsx10/(50x10%) = 
?
v18,00,000/5
=
?
v3,60,000  = 600 units
 2) From the following information, calculate Economic Order Quantity and the number of orders
to be placed in one quarter of the year.
(a) Quarterly consumption of materials =   2000 kg
(b) Cost of placing one order =   Rs. 50
(c) Cost per unit =   Rs. 40
(d) Storage and carrying cost =   8% of average inventory
EoQ=
?
v2AB/CxS
A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x8,000x50/(40x8%) = 
?
v8,00,000/3.2 = 500 kgs 
Number of orders to be placed in one quarter = Material consumption  per quarter / EoQ per order
                                                                        = 2000 kgs / 500
                                                                        = 4 orders 
Page 3


Problems on Economic Ordering Quantity 
1.  Calculate the economic order quantity for material M. The following details are furnished:
         Annual usage =   90000 units
         Buying cost per order =   Rs. 10
         Cost of carrying inventory =   10% of cost
         Cost per unit = Rs.50
EoQ=
?
v2AB/CxS
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x90,000unitsx10/(50x10%) = 
?
v18,00,000/5
=
?
v3,60,000  = 600 units
 2) From the following information, calculate Economic Order Quantity and the number of orders
to be placed in one quarter of the year.
(a) Quarterly consumption of materials =   2000 kg
(b) Cost of placing one order =   Rs. 50
(c) Cost per unit =   Rs. 40
(d) Storage and carrying cost =   8% of average inventory
EoQ=
?
v2AB/CxS
A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x8,000x50/(40x8%) = 
?
v8,00,000/3.2 = 500 kgs 
Number of orders to be placed in one quarter = Material consumption  per quarter / EoQ per order
                                                                        = 2000 kgs / 500
                                                                        = 4 orders 
3. Following information relating to a type of raw material is available:
Annual demand 2400 units
Unit Price Rs. 2.40  - C
Ordering cost per order Rs. 4.00   - B
Storage cost 2% per annum
Interest rate 10% per annum
Calculate Economic Order Quantity.
EoQ=
?
v2AB/CxS
A = Annual Consumption 
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
Interest rate is not considered and treated as non-storage cost 
EoQ = 
?
v
2x2400x4/(2.40x2%) = 
?
v19200/0.048 = 632 units
Note: Interest payment is considered as storage cost and in the storage and carrying cost and the loan is 
taken for the purpose of capital expenditure on storage. 
EoQ = 
?
v
2x2400x4/(2.40x12%) = 
?
v19200/0.288 = 258 units
Page 4


Problems on Economic Ordering Quantity 
1.  Calculate the economic order quantity for material M. The following details are furnished:
         Annual usage =   90000 units
         Buying cost per order =   Rs. 10
         Cost of carrying inventory =   10% of cost
         Cost per unit = Rs.50
EoQ=
?
v2AB/CxS
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x90,000unitsx10/(50x10%) = 
?
v18,00,000/5
=
?
v3,60,000  = 600 units
 2) From the following information, calculate Economic Order Quantity and the number of orders
to be placed in one quarter of the year.
(a) Quarterly consumption of materials =   2000 kg
(b) Cost of placing one order =   Rs. 50
(c) Cost per unit =   Rs. 40
(d) Storage and carrying cost =   8% of average inventory
EoQ=
?
v2AB/CxS
A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x8,000x50/(40x8%) = 
?
v8,00,000/3.2 = 500 kgs 
Number of orders to be placed in one quarter = Material consumption  per quarter / EoQ per order
                                                                        = 2000 kgs / 500
                                                                        = 4 orders 
3. Following information relating to a type of raw material is available:
Annual demand 2400 units
Unit Price Rs. 2.40  - C
Ordering cost per order Rs. 4.00   - B
Storage cost 2% per annum
Interest rate 10% per annum
Calculate Economic Order Quantity.
EoQ=
?
v2AB/CxS
A = Annual Consumption 
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
Interest rate is not considered and treated as non-storage cost 
EoQ = 
?
v
2x2400x4/(2.40x2%) = 
?
v19200/0.048 = 632 units
Note: Interest payment is considered as storage cost and in the storage and carrying cost and the loan is 
taken for the purpose of capital expenditure on storage. 
EoQ = 
?
v
2x2400x4/(2.40x12%) = 
?
v19200/0.288 = 258 units
4. A Company manufactured 5000 units of a product per month. Cost of placing an order is Rs.
100. The purchase price of raw material is Rs. 10 per kg. The re-order period is 4 to 8 weeks.
The consumption of raw materials varies from 100 kg to 450 kg per week, the average
consumption being 275 kg; the carrying cost of inventory is 20% per annum. Calculate (a) Re-
order Quantity   &   (b) Re-order level.
EoQ=
?
v2AB/CxS
A = Normal consumption of material per week x 52  = 275 per week x 52 weeks 
A= 14,300 units of materials 
B = 100
C = 10 per unit
S = 20%
a. Re-order quantity or EoQ = 
?
v
2x14,300x100/(10x20%) = 
?
v2860000/2 = 1,196 units
b. Re-order Level = Max consumption x maximum re-order period
                         = 450 x 8 
                         = 3,600 units.
5. A Company uses 2500 units of a material per month. Cost of placing an order is Rs. 150. The
cost per unit is Rs. 20. The re-order period is 4 to 8 weeks. The minimum consumption of raw
material is 100 units whereas the average consumption is 275 units. The carrying cost of
inventory is 20% per annum. Calculate (a) Re-order Quantity   &   (b) Re-order level.
A = 2500 x 12  (as it is given clearly, that’s why did not take the average consumption)
   = 30,000
B = 150
C = 20
S = 20%
Page 5


Problems on Economic Ordering Quantity 
1.  Calculate the economic order quantity for material M. The following details are furnished:
         Annual usage =   90000 units
         Buying cost per order =   Rs. 10
         Cost of carrying inventory =   10% of cost
         Cost per unit = Rs.50
EoQ=
?
v2AB/CxS
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x90,000unitsx10/(50x10%) = 
?
v18,00,000/5
=
?
v3,60,000  = 600 units
 2) From the following information, calculate Economic Order Quantity and the number of orders
to be placed in one quarter of the year.
(a) Quarterly consumption of materials =   2000 kg
(b) Cost of placing one order =   Rs. 50
(c) Cost per unit =   Rs. 40
(d) Storage and carrying cost =   8% of average inventory
EoQ=
?
v2AB/CxS
A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
EoQ = 
?
v
2x8,000x50/(40x8%) = 
?
v8,00,000/3.2 = 500 kgs 
Number of orders to be placed in one quarter = Material consumption  per quarter / EoQ per order
                                                                        = 2000 kgs / 500
                                                                        = 4 orders 
3. Following information relating to a type of raw material is available:
Annual demand 2400 units
Unit Price Rs. 2.40  - C
Ordering cost per order Rs. 4.00   - B
Storage cost 2% per annum
Interest rate 10% per annum
Calculate Economic Order Quantity.
EoQ=
?
v2AB/CxS
A = Annual Consumption 
B = Buying cost per order
C = Cost per unit
S = Storage and carrying cost   (if it is given in % apply on cost of the material)
Interest rate is not considered and treated as non-storage cost 
EoQ = 
?
v
2x2400x4/(2.40x2%) = 
?
v19200/0.048 = 632 units
Note: Interest payment is considered as storage cost and in the storage and carrying cost and the loan is 
taken for the purpose of capital expenditure on storage. 
EoQ = 
?
v
2x2400x4/(2.40x12%) = 
?
v19200/0.288 = 258 units
4. A Company manufactured 5000 units of a product per month. Cost of placing an order is Rs.
100. The purchase price of raw material is Rs. 10 per kg. The re-order period is 4 to 8 weeks.
The consumption of raw materials varies from 100 kg to 450 kg per week, the average
consumption being 275 kg; the carrying cost of inventory is 20% per annum. Calculate (a) Re-
order Quantity   &   (b) Re-order level.
EoQ=
?
v2AB/CxS
A = Normal consumption of material per week x 52  = 275 per week x 52 weeks 
A= 14,300 units of materials 
B = 100
C = 10 per unit
S = 20%
a. Re-order quantity or EoQ = 
?
v
2x14,300x100/(10x20%) = 
?
v2860000/2 = 1,196 units
b. Re-order Level = Max consumption x maximum re-order period
                         = 450 x 8 
                         = 3,600 units.
5. A Company uses 2500 units of a material per month. Cost of placing an order is Rs. 150. The
cost per unit is Rs. 20. The re-order period is 4 to 8 weeks. The minimum consumption of raw
material is 100 units whereas the average consumption is 275 units. The carrying cost of
inventory is 20% per annum. Calculate (a) Re-order Quantity   &   (b) Re-order level.
A = 2500 x 12  (as it is given clearly, that’s why did not take the average consumption)
   = 30,000
B = 150
C = 20
S = 20%
a. Re-order quantity or EoQ = 
?
v
2x30000x150/(20x20%) = 
?
v90,00,000/4 = 1,500 units
b. Re-order Level = Max consumption x Max ordering period
                                = 450 x 8 weeks
                                = 3,600 units.
Average consumption =( Min consumption + max consumption) / 2
275 = (100 + Max cons) /2
275 x 2 = 100 + max consumption   = 450 units.
6.   XY Co. requires 1500 units of a material per month, each costing Rs. 27. Cost per order is Rs.
150 and the inventory carrying charges work out to 20% of the average inventory. Find out the
economic order quantity and the number of orders per year.
A = 1500 x 12 = 18,000 units
B = 150 
C = 27
S = 20%
EoQ = 
?
v
2x18,000x150/(27x20%) = 
?
v54,00,000/5.4 = 1,000 units
No of orders per year = No of units required per year / eoq
                                  = 18,000 / 1000   = 18 orders per year