**Economic Order Quantity Problems and Solutions**

Contents

**Previous Lesson: Inventory Management Problems**

**Next Lesson: Cost Volume Profit Analysis Problems**

**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 .

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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I also didn’t understand Q3 Holding cost?

I suppose question 3 EOQ should have been 60 units

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

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