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A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity?
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A manufacturing company consumer awareness 300 unit and item of raw ma...
Calculation of Economic Order Quantity (EOQ) for a Manufacturing Company
The Economic Order Quantity (EOQ) is a mathematical formula used to calculate the optimal quantity of inventory to order at any given time. It is essential for a manufacturing company to determine the EOQ to ensure that it maintains the right amount of inventory in stock while minimizing the cost of ordering and carrying inventory.
Given the following information:
- Monthly demand for the item: 300 units
- Cost per unit of raw material: Rs. 25
- Cost of placing an order: Rs. 250
- Cost of carrying one unit of inventory per year: Rs. 2.50
- Interest on inventory: 10%
We can calculate the EOQ using the following formula:
EOQ = √((2DS)/H)
Where:
D = Annual demand
S = Cost of placing an order
H = Holding cost per unit per year
Step 1: Calculate the Annual Demand
The monthly demand for the item is 300 units. Therefore, the annual demand can be calculated as follows:
Annual Demand = Monthly Demand x 12
Annual Demand = 300 x 12
Annual Demand = 3600 units
Step 2: Calculate the Holding Cost per Unit per Year
The holding cost per unit per year is Rs. 2.50. Therefore, the formula for calculating the holding cost per unit per year is:
Holding Cost per Unit per Year = Cost of Holding Inventory x Interest on Inventory
Holding Cost per Unit per Year = Rs. 2.50 x 10%
Holding Cost per Unit per Year = Rs. 0.25
Step 3: Calculate the EOQ
Now that we have all the variables, we can calculate the EOQ using the formula:
EOQ = √((2DS)/H)
EOQ = √((2 x 3600 x 250)/0.25)
EOQ = √(1800000)
EOQ = 1341.64 or 1342 units (rounded up)
Therefore, the manufacturing company should order 1342 units of raw material per order to minimize the cost of ordering and carrying inventory.
Conclusion
By calculating the EOQ, the manufacturing company can ensure that it has enough inventory to meet the demand while minimizing the cost of ordering and carrying inventory. The EOQ formula considers the cost of placing an order, the cost of carrying inventory, and the annual demand for the item.
The Economic Order Quantity (EOQ) is a mathematical formula used to calculate the optimal quantity of inventory to order at any given time. It is essential for a manufacturing company to determine the EOQ to ensure that it maintains the right amount of inventory in stock while minimizing the cost of ordering and carrying inventory.
Given the following information:
- Monthly demand for the item: 300 units
- Cost per unit of raw material: Rs. 25
- Cost of placing an order: Rs. 250
- Cost of carrying one unit of inventory per year: Rs. 2.50
- Interest on inventory: 10%
We can calculate the EOQ using the following formula:
EOQ = √((2DS)/H)
Where:
D = Annual demand
S = Cost of placing an order
H = Holding cost per unit per year
Step 1: Calculate the Annual Demand
The monthly demand for the item is 300 units. Therefore, the annual demand can be calculated as follows:
Annual Demand = Monthly Demand x 12
Annual Demand = 300 x 12
Annual Demand = 3600 units
Step 2: Calculate the Holding Cost per Unit per Year
The holding cost per unit per year is Rs. 2.50. Therefore, the formula for calculating the holding cost per unit per year is:
Holding Cost per Unit per Year = Cost of Holding Inventory x Interest on Inventory
Holding Cost per Unit per Year = Rs. 2.50 x 10%
Holding Cost per Unit per Year = Rs. 0.25
Step 3: Calculate the EOQ
Now that we have all the variables, we can calculate the EOQ using the formula:
EOQ = √((2DS)/H)
EOQ = √((2 x 3600 x 250)/0.25)
EOQ = √(1800000)
EOQ = 1341.64 or 1342 units (rounded up)
Therefore, the manufacturing company should order 1342 units of raw material per order to minimize the cost of ordering and carrying inventory.
Conclusion
By calculating the EOQ, the manufacturing company can ensure that it has enough inventory to meet the demand while minimizing the cost of ordering and carrying inventory. The EOQ formula considers the cost of placing an order, the cost of carrying inventory, and the annual demand for the item.
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A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity?
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A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity?.
A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A manufacturing company consumer awareness 300 unit and item of raw materials per month the cost per unit of raw material is rupees 25 the cost of placing an order is rupees 250 the cost of carrying one unit of inventory per year are rain tax extra rupees 2.50 and interest on inventory at the 10% calculating economic order quantity?.
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