Question: Purchase Manager has been given an estimated annual purchase requirement of2000 units of material. Unit price of material is Rs20. Annual cost of carrying inventory

Purchase Manager has been given an estimated annual purchase requirement of2000 units of material. Unit price of material is Rs20. Annual cost of carrying inventory is 25% of cost of material. Ordering cost for an order is Rs50. What order size would you recommend to the Purchase Manager?

A producer has estimated annual requirements of a material as 7200 units. Cost of placing an order is estimated as Rs 50/order and annual storage cost/unit of material is Rs. 5. Calculate the optimum order quantity or EOQ. Also show that at EOQ level, total ordering cost is equal to total storage cost.

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