**Previous Lesson: Inventory Management**

**Next Lesson: Cost Volume Profit Analysis**

**Video Lecture: Costing Concepts in Urdu & Hindi-Workbook ****Practice**

**Click Here To Download Workbook Used in Video**

**Click Here To Download Workbook Used in Video**

**Economic Order Quantity** is the level of inventory that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. Economic order quantity refers to that number (quantity) ordered in a single purchase so that the accumulated costs of ordering and carrying costs are at the minimum level. In other words, the quantity that is ordered at one time should be so, which will minimize the total of. Cost of placing orders and receiving the goods, and Cost of storing the goods as well as interest on the capital invested.

The economic order quantity can be determined by the following simple formula:

**Formula **

**EOQ =** Economic Order Quantity,

**RU =** Annual Required Units,

**OC =** Ordering Cost for one Unit

**UC =** Inventory Unit Cost,

**CC =** Carrying Cost as %age of Unit Cost

* *

>> Practice Economic Order Quantity Problems and Solutions.

* *

**Example 1: **

Demand for the Child Cycle at Best Buy is 500 units per month. Best Buy incurs a fixed order placement, transportation, and receiving cost of Rs. 4,000 each time an order is placed. Each cycle costs Rs. 500 and the retailer has a holding cost of 20 percent. Evaluate the number of computers that the store manager should order in each replenishment lot?

>> Practice Economic Order Quantity Problems and Solutions.

**Example 2:**

ABC Ltd. uses EOQ logic to determine the order quantity for its various components and is planning its orders. The Annual consumption is 80,000 units, Cost to place one order is Rs. 1,200, Cost per unit is Rs. 50 and carrying cost is 6% of Unit cost. Find EOQ, No. of order per year, Ordering Cost and Carrying Cost and Total Cost of Inventory.

>> Question and Answers: Economic Order Quantity Problems and Solutions

**Example 3: **

Midwest Precision Control Corporation is trying to decide between two alternate Order Plans for its inventory of a certain item. Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually. Under Plan 1^{st}, Midwest would use a teletype for ordering; order costs would be Rs. 40 per order. Inventory holding costs (carrying cost) would be Rs. 100 per unit per annum. Under Plan 2^{nd} order costs would be Rs. 30 per order. And holding costs would 20% and unit Cost is Rs. 480. Find out EOQ and Total Inventory Cost than decide which Plan would result in the lowest total inventory cost?

>> Practice Economic Order Quantity Problems and Solutions.

**Example 4: **

A local TV repairs shop uses 36,000 units of a part each year (A maximum consumption of 100 units per working day). It costs Rs. 20 to place and receive an order. The shop orders in lots of 400 units. It cost Rs. 4 to carry one unit per year of inventory.

*Requirements: *

**(1) **Calculate total annual ordering cost

**(2) **Calculate total annual carrying cost

**(3)** Calculate total annual inventory cost

**(4) **Calculate the Economic Order Quantity

**(5)** Calculate the total annual cost inventory cost using EOQ inventory Policy

**(6)** How much save using EOQ

**(7) **Compute ordering point assuming the lead time is 3 days

>> Practice Economic Order Quantity Problems and Solutions.

**Previous Lesson: Inventory Management**

**Next Lesson: Cost Volume Profit Analysis**

**Related Topics**

**Economic Order Quantity Problems and Solutions**

**Economic Order Quantity Problem PDF**

**Economic Order Quantity MCQs**

Please I need an urgent help with the following problem:

The demand for an item is 44,000 units per annum, the ordering cost is $50 per order. The holding cost per item is $2.5 per annum and the price per unit of the item is $10. The supplier offers a discount rate of 3% for orders between 10,000 to 31,999 and 8% discount rate for orders of 32,000 and above.

You’re required to determine the best quantity to order

ABC Corp. currently places orders for a particular stock item at quarterly intervals. Information concerning this items is as follows: P10 Cost of placing an order 25,000 units Annual demand P0.50 Carrying cost per unit What annual cost saving would result if ABC used the economic order quantity for order sizes instead of their current policy?

2) The Star Equipment Company purchases 54,000 bearing assemblies each year at a unit cost of $40.00. The holding cost is $9.00 per unit per year, and the ordering cost is $20.00.

(a) What is the economic order quantity?

(b) How many orders should be placed per year?

(c) If the lead time is one (01) month, what is the re-order point for the assemblies?

(a) 490

(b) 110

(c) 4500

Amazing post! We’re currently linking to this article on our

website. Keep up the great writing.

King regards,

Balle Zacho

Thanks man. Very useful.

hardware shop in Gweru sells 2500 brackets in a year and the sales is relatively constant throughout the

year. These brackets are purchased from a supplier from Harare for $15 each, and lead time is two days.

The holding cost per bracket per year is $1.5(or 10% of the unit cost) and the ordering cost per order is

$18. 75. There are 250 working days per year.

1. What is the EOQ?

2. Given the EOQ, what is the aver

EOQ = 250 Brackets

TOTAL COST = $ 375

I pass through the notice i understand

Thank you

I need help on a Question Sir

Is it possible for you to place an order and the delivery is done in parts? If yes how do we calculate the EOQ.