company buys its annual requirement of 36,000 units in six installments. Each unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value. Find the total annual cost of the existing inventory policy. How much money can be saved by using E.O.Q Related: Economic Order Quantity, Stock levels and Inventory Costs - Material Cost, Cost Accounting?

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company buys its annual requirement of 36,000 units in six installments. Each unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value. Find the total annual cost of the existing inventory policy. How much money can be saved by using E.O.Q

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company buys its annual requirement of 36,000 units in six installment...

Using the existing inventory policy, the company orders 6,000 units at a time (36,000/6).

The annual ordering cost is:
6 orders x `25 per order = `150

The annual inventory carrying cost is:
(36,000/2) x `1 x 20% = `3,600

Therefore, the total annual cost of the existing inventory policy is:
`150 + `3,600 = `3,750

To calculate the EOQ, we use the formula:
EOQ = √(2DS/H)
where D = annual demand (36,000 units), S = ordering cost (`25), and H = inventory carrying cost as a percentage of unit value (20% or 0.2).

EOQ = √(2 x 36,000 x 25 / 0.2)
EOQ = √(1,800,000)
EOQ = 1,341 units

This means the company should order 1,341 units at a time to minimize total inventory costs.

The annual ordering cost with EOQ is:
36,000 / 1,341 x `25 = `668

The annual inventory carrying cost with EOQ is:
(1,341/2) x `1 x 20% = `134

Therefore, the total annual cost with EOQ is:
`668 + `134 = `802

The company can save `2,948 (`3,750 - `802) by using EOQ.

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company buys its annual requirement of 36,000 units in six installments. Each unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value. Find the total annual cost of the existing inventory policy. How much money can be saved by using E.O.Q Related: Economic Order Quantity, Stock levels & Inventory Costs - Material Cost, Cost Accounting? 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 company buys its annual requirement of 36,000 units in six installments. Each unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value. Find the total annual cost of the existing inventory policy. How much money can be saved by using E.O.Q Related: Economic Order Quantity, Stock levels & Inventory Costs - Material Cost, Cost Accounting? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for company buys its annual requirement of 36,000 units in six installments. Each unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value. Find the total annual cost of the existing inventory policy. How much money can be saved by using E.O.Q Related: Economic Order Quantity, Stock levels & Inventory Costs - Material Cost, Cost Accounting?.

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