A firm consumes 90000 units of a certain item of raw material in its production process annually. It…
The Economic Order Quantity (EOQ) formula is EOQ = sqrt((2 * A * O) / C), where annual consumption A = 90,000 units, ordering cost per order O = Rs. 300, and annual carrying…
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A firm consumes 90000 units of a certain item of raw material in its production process annually. It costs Rs. 3 per unit, the cost per purchase order is Rs. 300 and the inventory carrying cost is 20% per year. What is the EOQ?
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Correct answer B
The Economic Order Quantity (EOQ) formula is EOQ = sqrt((2 * A * O) / C), where annual consumption A = 90,000 units, ordering cost per order O = Rs. 300, and annual carrying cost per unit C = 20% of Rs. 3 = Rs. 0.60. Thus, EOQ = sqrt((2 * 90,000 * 300) / 0.60) = sqrt(5,40,00,000 / 0.60) = sqrt(9,00,00,000) = 9,486.83 units, which rounds to 9,487 units.
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UGC NET Commerce