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The annual demand for an item is 10,000 units. The unit cost is Rs. 100 and inventory carrying charges are 14.4% of the unit cost per annum. The cost of one procurement is Rs. 2000. The time between two consecutive orders to meet the above demand is _____ month (s)
(Important - Enter only the numerical value in the answer)
Correct answer is '2'. Can you explain this answer?
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The annual demand for an item is 10,000 units. The unit cost is Rs. 10...
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The annual demand for an item is 10,000 units. The unit cost is Rs. 10...
Given information:
- Annual demand for the item = 10,000 units
- Unit cost = Rs. 100
- Inventory carrying charges = 14.4% of the unit cost per annum
- Cost of one procurement = Rs. 2000
Calculating the Economic Order Quantity (EOQ):
The Economic Order Quantity (EOQ) is a formula used to calculate the optimal order quantity that minimizes the total inventory costs. It can be calculated using the following formula:
EOQ = sqrt((2 * Demand * Cost per procurement) / Carrying cost per unit)
Where,
Demand = Annual demand for the item
Cost per procurement = Cost of one procurement
Carrying cost per unit = Inventory carrying charges per unit
Substituting the given values:
EOQ = sqrt((2 * 10,000 * 2000) / (0.144 * 100))
Simplifying the equation:
EOQ = sqrt((40,000,000) / (14.4))
EOQ = sqrt(2,777,777.78)
EOQ ≈ 1666.67
Calculating the Time Between Two Consecutive Orders:
The time between two consecutive orders can be calculated using the formula:
Time between two consecutive orders = EOQ / Demand
Substituting the values:
Time between two consecutive orders = 1666.67 / 10,000
Simplifying the equation:
Time between two consecutive orders ≈ 0.1667
Converting the time to months (as per the question):
Time between two consecutive orders ≈ 0.1667 * 12
Time between two consecutive orders ≈ 2 months
Therefore, the time between two consecutive orders to meet the given demand is approximately 2 months.
- Annual demand for the item = 10,000 units
- Unit cost = Rs. 100
- Inventory carrying charges = 14.4% of the unit cost per annum
- Cost of one procurement = Rs. 2000
Calculating the Economic Order Quantity (EOQ):
The Economic Order Quantity (EOQ) is a formula used to calculate the optimal order quantity that minimizes the total inventory costs. It can be calculated using the following formula:
EOQ = sqrt((2 * Demand * Cost per procurement) / Carrying cost per unit)
Where,
Demand = Annual demand for the item
Cost per procurement = Cost of one procurement
Carrying cost per unit = Inventory carrying charges per unit
Substituting the given values:
EOQ = sqrt((2 * 10,000 * 2000) / (0.144 * 100))
Simplifying the equation:
EOQ = sqrt((40,000,000) / (14.4))
EOQ = sqrt(2,777,777.78)
EOQ ≈ 1666.67
Calculating the Time Between Two Consecutive Orders:
The time between two consecutive orders can be calculated using the formula:
Time between two consecutive orders = EOQ / Demand
Substituting the values:
Time between two consecutive orders = 1666.67 / 10,000
Simplifying the equation:
Time between two consecutive orders ≈ 0.1667
Converting the time to months (as per the question):
Time between two consecutive orders ≈ 0.1667 * 12
Time between two consecutive orders ≈ 2 months
Therefore, the time between two consecutive orders to meet the given demand is approximately 2 months.
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The annual demand for an item is 10,000 units. The unit cost is Rs. 100 and inventory carryingcharges are 14.4% of the unit cost per annum. The cost of one procurement is Rs. 2000. The timebetween two consecutive orders to meet the above demand is _____ month (s)(Important - Enter only the numerical value in the answer)Correct answer is '2'. Can you explain this answer?
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