The Economic Order Quantity (EOQ) is a formula used to calculate the optimal quantity of goods to order in order to minimize the total cost of inventory. The formula is as follows:

EOQ = √(2DS/H)

Where,
D = Annual demand
S = Ordering cost per order
H = Holding cost per unit per year

Using the given values, we can calculate the EOQ as follows:

EOQ = √(2 × 24000 × 40 / 0.02 × 25) = 979.8

Therefore, the EOQ for this scenario is 979.8 units.


To calculate the total inventory cost, we need to take into account the cost of ordering, holding, and stock out. The formula for total inventory cost is as follows:

Total inventory cost = (Q/2) × H + (D/Q) × S

Where,
Q = Order quantity
H = Holding cost per unit per year
D = Annual demand
S = Ordering cost per order

Using the calculated EOQ value of 979.8 units and the given values, we can calculate the total inventory cost as follows:

Total inventory cost = (979.8/2) × 0.02 × 25 + (24000/979.8) × 40 = Rs. 1,020.22

Therefore, the total inventory cost for this scenario is Rs. 1,020.22.


The Economic Order Quantity (EOQ) formula is used to determine the optimal order quantity for a business to minimize inventory costs. In this scenario, we were given the annual demand, unit price, ordering cost per order, storage cost, and interest rate. Using these values, we were able to calculate the EOQ as well as the total inventory cost.

The EOQ is the order quantity that minimizes the total cost of inventory. It takes into account the cost of ordering and holding inventory and is calculated using the annual demand, ordering cost per order, and holding cost per unit per year.

The total inventory cost includes the cost of holding inventory as well as the cost of ordering inventory. It is calculated using the order quantity, holding cost per unit per year, annual demand, and ordering cost per order.

Overall, the EOQ and total inventory cost are important metrics for businesses to consider when managing their inventory levels. By calculating these values, businesses can optimize their inventory levels to minimize costs and improve profitability.