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The annual demand for an item is 5200 units. The ordering cost is Rs. 200/order. The inventory holding cost on average inventory is 20%. The unit cost is Rs. 5 and the storage cost based on maximum inventory is 10 paise per unit per year. EOQ will be __________ units.
  • a)
    1373
  • b)
    1376
Correct answer is between ' 1373, 1376'. Can you explain this answer?
Verified Answer
The annual demand for an item is 5200 units. The ordering cost is Rs....
Total CC = Holding cost + Storage cost
= 0.2 × 5 + 0.1
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The annual demand for an item is 5200 units. The ordering cost is Rs....

Calculating EOQ:

1. Formula:
The Economic Order Quantity (EOQ) formula is:
EOQ = sqrt((2 * D * S) / H)

2. Given Data:
- Annual demand (D) = 5200 units
- Ordering cost (S) = Rs. 200/order
- Holding cost (H) = 20% of unit cost
- Unit cost = Rs. 5
- Storage cost = 10 paise per unit per year

3. Calculating Holding Cost:
Holding Cost = 20% of unit cost = 20% * Rs. 5 = Rs. 1

4. Calculating Storage Cost:
Storage Cost = 10 paise = Rs. 0.10 per unit per year

5. Calculating Total Holding and Storage Cost:
Total Holding and Storage Cost = Holding Cost + Storage Cost = Rs. 1 + Rs. 0.10 = Rs. 1.10

6. Substitute Values in EOQ Formula:
EOQ = sqrt((2 * 5200 * 200) / 1.10)
= sqrt(2080000 / 1.10)
= sqrt(1890909.09)
≈ 1375.78

7. Conclusion:
Therefore, the Economic Order Quantity (EOQ) will be approximately 1376 units.
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Community Answer
The annual demand for an item is 5200 units. The ordering cost is Rs....
Total CC = Holding cost + Storage cost
= 0.2 × 5 + 0.1
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