Question

‘Tech Supplies Ltd.' sells bluetooth speakers and needs to maintain a smooth supply to meet customer demand. Annual quantity of bluetooth speakers sold by the company is 2500 units. Cost of placing an order and receiving the bluetooth speakers is Rs. 50 per order. Inventory holding cost per unit is Rs. 25 per annum.

Calculate the Economic Order Quantity (EOQ) for ‘Tech Supplies Ltd.'

Hint:

$$\text{EOQ} = \sqrt{\frac{2 \times \text{Annual Demand} \times \text{Ordering Cost}}{\text{Carrying Cost}}}$$ Double-check your calculations:

• Total annual ordering costs: $\frac{2500}{100} \times 50 = \text{Rs. } 1,250$.
• Total annual carrying costs: $\frac{100}{2} \times 25 = \text{Rs. } 1,250$.

Because both costs are equal at 100 units, the solution is verified.

Answer 1

Step 1: Extracting the Financial Variables:
We identify and list the variables provided in the prompt: Annual Demand (D) &= 2,500 units per annum
Ordering Cost per order (O) &= Rs. 50
Carrying/Holding Cost per unit per annum (C) &= Rs. 25

Step 2: Stating the Mathematical EOQ Equation:
The Economic Order Quantity (EOQ) balances ordering costs and carrying costs to find the optimal order size. It is calculated using the following formula: EOQ = \sqrt{\frac{2 \times D \times O}{C}}

Step 3: Processing the Calculation:
Substitute our variables into the EOQ formula: EOQ &= \sqrt{\frac{2 \times 2,500 \times 50}{25}}
EOQ &= \sqrt{\frac{250,000}{25}}
EOQ &= \sqrt{10,000}
EOQ &= 100 units Tech Supplies Ltd. should order 100 units of bluetooth speakers per batch to minimize its total inventory costs.