Given an annual usage value of 400 units, the procurement cost is ₹20 per order, cost per piece is ₹100 and cost of carrying inventory is 10%. Calculate the economic order quantity.

Question

Question

This question was previously asked in

RRB JE CBT 2 (Mechanical Engineering) ReExam Official Paper (Held On: 04 Jun, 2025)

Answer 1

Concept:

Economic Order Quantity-

How much to buy at a time, or more specifically, for how much inventory to place an order at a time, is one of the crucial decisions that a company must make when managing its inventory.
The term "Economic Ordering Quantity" applies to this.
Baumol's cash management model is the foundation of the EOQ model.
Economic Order Quantity = \(\begin{equation} E O Q=\sqrt{\frac{2 DC_o}{C_h}} \end{equation}\)

Calculation:

Given:

D = 400, C_o = ₹20 per order, C_h = 10% of ₹100 = ₹10

\(\begin{equation} E O Q=\sqrt{\frac{2 DC_o}{C_h}} \end{equation}\)

⇒ \(\begin{equation} E O Q=\sqrt{\frac{2 \times 400 \times 20}{10}} \end{equation}\) = 40