**Economic Order Quantity Problems and Solutions**

**Previous Lesson: Inventory Management Problems**

**Next Lesson: Process Costing Problems and Solutions**

**Problem # 1: **

Calculate **Economic Order Quantity** (EOQ) from the following:

Annual consumption 6,000 units

Cost of ordering Rs. 60

Carrying costs Rs. 2

**Solution:**

*EOQ =600 Units*

>> More Reading Economic Order Quantity.

**Problem # 2: **

From the following particulars, calculate the Economic Order Quantity (EOQ):

Annual requirements 1,600 units Cost of materials per units Rs. 40

Cost of placing and receiving one order: Rs. 50 Annual carrying cost for inventory value 10%

**Solution:**

*EOQ = 200 Units*

>> More Reading Inventory Management.

**Problem # 3:**

Calculate EOQ from the following?

Consumption during the year = 600 units Ordering cost Rs. 12 per order

Carrying cost 20% Selling Price per unit Rs. 20

* *

**Solution:**

*Economic Order Quantity = 379 Units*

>> Practice Inventory Management Problems and Solutions.

**Problem # 4: **

A manufacturer buys certain equipment form suppliers at Rs. 30 per unit. Total annual needs are 800 units. The following further data are available:

Annual return on investments 10% Rent, insurance, storing per unit per year Rs. 2

Cost of placing an order Rs. 100

*Required: EOQ*

* *

**Solution:**

*EOQ = 200 Units*

>> More Reading Cost of Goods Sold.

**Problem # 5: **

From the figures given below, calculate Economic Order Quantity (EOQ) and Total cost at EOQ?

Total consumption of material per year 10,000 kgs Buying cost per order Rs. 50

Unit cost of material Rs. 2 per kg Carrying and storage cost 8%

**Solution:**

*EOQ = 2,500 Units*

* *

*Total Inventory Cost = [Fixed ordering cost (F) * Number of Order per year N] + [Carrying Cost (C)* EOQ/2]*

Total Inventory Cost = [50 * 10,000/2,500] + [(2*0.08)* 2,500/2]

Total Inventory Cost = 200 + 200

*Total Inventory Cost = Rs. 400*

>> More Reading Costing .

**Related Topics**

**Inventory Management MCQs**

**Economic Order Quantity MCQ**

Chris Plc is to decide between two alternative inventory plans for one of their production component. Regardless of the alternative pursued, demand for the component is 100,000 pieces per annum. For Plan A, Chris will use its E-mail facilities for ordering at N40 per order. Warehousing charges will be N25 per unit per quarter while insurance charges are estimated at 0.65% of the production cost per unit, currently put at N80 per unit. For Plan B, ordering will be done via telex at a cost of N125 per order while holding cost will remain the same. REQUIRED: Which plan will result in lower total inventory carrying cost and why?

A manufacturer uses 7500 units of a material ‘Z’ per year. The material cost is rs.15 per unit and carrying cost is 40% per annum of average inventory cost. The cost of placing order is rs.36. Calculate EOQ and number of orders placed per annum.

EOQ = √2×7500×36/15×40%

= 300 units.

Number of orders placed per annum A/EOQ = 7500/300 = 25 orders.

Help me with this problem

Data given.

EOQ=750 units.

Annual demand= 22500units.

Carrying cost= 20% of average stock value.

Requirements;

a. Unit purchase price

b. Ordering cost per order.

c. Number of order per annum.

d. Annual ordering cost.

I need the solution of this question

it is not explicit question please do it?

a. Unit purchase price

The formula for calculating the unit purchase price is as follows:

Unit Purchase Price = Total Annual Cost of Goods / Annual Demand

To calculate the total annual cost of goods, we first need to calculate the annual order quantity. The formula for calculating the annual order quantity is:

Annual Order Quantity = √((2 x Annual Demand x Ordering Cost per Order) / Carrying Cost per Unit)

Substituting the given values, we get:

Annual Order Quantity = √((2 x 22500 x Ordering Cost per Order) / 0.2)

EOQ = 750 units

Now, we can solve for Ordering Cost per Order:

750 = √((2 x 22500 x Ordering Cost per Order) / 0.2)

Ordering Cost per Order = 60

Using this value, we can calculate the Annual Order Quantity:

Annual Order Quantity = √((2 x 22500 x 60) / 0.2) = 4500

Total Annual Cost of Goods = Unit Purchase Price x Annual Demand

Unit Purchase Price = Total Annual Cost of Goods / Annual Demand

Unit Purchase Price = (4500 x 60) / 22500 = 12

Therefore, the unit purchase price is 12.

b. Ordering cost per order

We have already calculated the ordering cost per order in part (a). It is 60.

c. Number of orders per annum

The number of orders per annum can be calculated as follows:

Number of Orders per Annum = Annual Demand / Annual Order Quantity

Substituting the given values, we get:

Number of Orders per Annum = 22500 / 4500 = 5

Therefore, the number of orders per annum is 5.

d. Annual ordering cost

The annual ordering cost can be calculated as follows:

Annual Ordering Cost = Number of Orders per Annum x Ordering Cost per Order

Substituting the given values, we get:

Annual Ordering Cost = 5 x 60 = 300

Therefore, the annual ordering cost is 300.

Please solve problems like this;A cloth manufacturer purchases cotton in large quantities from producers in order to make different types of cloth.250000 tones of cotton are forecasted to be required next year to support the production of the output.If cotton costs br.600 per ton,carrying cost is 20% of the purchasing cost,and ordering cost br.1500 per year.The firm operates 240 days per year and its daily requirement is 500 tones of cotton.

Required:

A.what is the economic order quantity(EOQ)?

B.determine the total annual inventory cost at EOQ?

C.How time per year should the firm reorder?

D.How much is the reorder quantity level?

Please help me solve this question:

A particular item has a demand of 9000 units per year. The cost of one procurement is N100 and the holding cost per unit is ₦2.40 per year. The replacement is instantaneous and no shortages are allowed.

Determine:

(i) The number of orders per year

(ii) The time between orders

(iii) The total cost per year if the cost of one unit is ₦10

a close manufacture purchase cotten oin large quantity from producers in order to make different types of close. 250000 tones of cotton are forecasted to be required next year to support the production of the out put. if cotton cost birr 600 per ton carring cost is 20% of the purchasing cost and ordering cost birr 1500 per order the farm operators 240 days per year and its daily requirement is 500 tons of cost. how many time per year should the firm reorder

The question has no lead time.

Why not download

DVD Store sells rice per cavan in some small stores. The current price schedule given to small stores is as follows:

5-15 cavans, ₱1,200 per cavan

16-30 cavans, ₱1,100 per cavan

More than 30 cavans, ₱1,000 per cavan

Average annual demand is 1000 cavans of rice. Carrying cost is ₱650 per cavan per year. Order cost is ₱350. Determine the optimal order quantity.

I need solution for the problems

Why

the xyz import company imports olives as well as other items used by specialty restaurants. the company has determined that the ordering cost of an order of extra fenly olives is $ 90 and the carrying charges are 40% of the average value of the inventory. xyz buys approximately $ 1350000 of the olives annually. currently the company is importing the olives on an optimal eoq basis but has been given the option of purchasing the olives for 50% discount if purchases are made exactly six times a year. Should the company keep this arrangement?

problem solving quesion

The Florida company has obtained the following costs and other data pertaining to one of its materials:

Workign days per year 250

Normal use per day 500 units

Max. use per day 600 units

Min. use per day 100 units

Lead time 5 days

variable cost of placing one order $ 36

variable carrying cost per unit per year $ 1

Required:

Economic Order Quantity

Hi,

I have calculated the EOQ . Now i want to order the items on 2 week basis.

How can I redefine the formula.

What do we mean when we talk about Normal usage in units per year? is it the same as consumption?

Can you work out for me this problem?

Normal delivery time: 2.5 weeks

Maximum delivery time: 3.5 weeks

Normal usage: 52 000 units per year

Purchase price per unit: N$8.50

Cost of placing an order: N$18.00

Interest rate: 2% per year

Storing cost per unit: N$2.50

Requirement

2.2.1 Calculate the Economic Order Quantity (EOQ). [5]

2.2.2 Calculate the re-order point if the organisation does not keep safety (minimum level) inventory. [2]

2.2.3 Calculate the re-order point if the organisation has a policy to keep safety inventory. [2]

2.2.4 Calculate the safety inventory that should be kept by the organisation. [2]

2.2.5 Using your answers to the calculations above where relevant, calculate the company’s total inventory costs (holding plus ordering) for the year. [4]

Thank you

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A manufacturer requires 4,000kg. of a raw material

annually. The ordering cost is Rs. 5 per order. The

carrying cost is estimated to be 8% of average inventory

per year. The purchase price of the raw material is Rs. 2

per kg. Calculate the Economic lot size and the total cost.

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I also didn’t understand Q3 Holding cost?

I suppose question 3 EOQ should have been 60 units

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A manufacturer requires 4,000kg. of a raw material

annually. The ordering cost is Rs. 5 per order. The

carrying cost is estimated to be 8% of average inventory

per year. The purchase price of the raw material is Rs. 2

per kg. Calculate the Economic lot size and the total cost.

The manufacturer is offered a 5% discount in purchase.

really helpful

I didn’t understand problem 3 where UC =1 and CC=10%????

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Chris Plc is to decide between two alternative inventory plans for one of their production component. Regardless of the alternative pursued, demand for the component is 100,000 pieces per annum. For Plan A, Chris will use its E-mail facilities for ordering at N40 per order. Warehousing charges will be N25 per unit per quarter while insurance charges are estimated at 0.65% of the production cost per unit, currently put at N80 per unit. For Plan B, ordering will be done via telex at a cost of N125 per order while holding cost will remain the same. REQUIRED: Which plan will result in lower total inventory carrying cost and why?