Question

‘Kwality Book Store’ sells 40,000 chart papers per year. The demand is constant throughout the year. The purchase cost is ₹10 per chart paper. Holding cost per annum is 20% of purchase cost, ordering cost is ₹100 per order. Calculate the Economic Order Quantity (EOQ).

Hint:

EOQ helps minimize total inventory costs by balancing ordering and holding costs. Use the formula \(EOQ = \sqrt{\frac{2DS{H\).

Answer 1

Given data:
Annual demand, \(D = 40,000\) chart papers
Purchase cost per unit, \(C = ₹10\) (not directly used in EOQ calculation)
Holding cost rate = 20% of purchase cost \(\Rightarrow\) Holding cost per unit per year, \(H = 20% \times 10 = ₹2\)
Ordering cost, \(S = ₹100\) per order The formula for Economic Order Quantity (EOQ) is: \[ EOQ = \sqrt{\frac{2DS}{H}} \] Substitute the values: \[ EOQ = \sqrt{\frac{2 \times 40,000 \times 100}{2}} = \sqrt{\frac{8,000,000}{2}} = \sqrt{4,000,000} = 2000 \] Economic Order Quantity (EOQ) = 2000 chart papers