Question
The annual demand of valves per year in a company is 10,000 units. The current order quantity is 400 valves per order. The holding cost is Rs. 24 per valve per year and the ordering cost is Rs. 400 per order. If the current order quantity is changed to Economic Order Quantity, then the saving in the total cost of inventory per year will be Rs. (round off to two decimal places).
Answer :
943.60
D = 1000 units
Q = 400 Values / order
Cn = 24rs/ value / year
C0 400 Rs / order
EOQ = √(2DC0 /n) = √(2•10000•400/24)
Q*= EOQ = 577.35
TIC (Q) = √(2DC0Cn) = √(2•10000•400/24)= 13856
TIC (Q) = DC0/Q + QCn/2
= 10000•400/400 + 400•24/2
= 10000 + 4800 = 14800
saving = 14800 - 13856.41 = 943.60
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