BUSN 312 Week 6 Assignment/Updated A+ Score Guide Solution

BUSN 312 Week 6 Assignment

The annual requirements for a particular raw
material are 2,000 units costing Re. 1 each to the
manufacturer. The ordering cost is Rs. 10 per order
and the carrying cost 16% per annum of the average
inventory value.
1. Based on the above
Find and explain the economic order quantity and
the total inventory cost per annum.
Question 1 Answer:
The Economic Order Quantity (EOQ) helps figure out
the best amount of inventory to have on hand. EOQ
is a math formula that helps businesses save cash and
time by figuring out the best balance between what
it costs to order products and what it costs to keep it
in stock.

EOQ


EOQ = 500 Units

, Total Inventory Cost per annum = Rs.80
Ordering Cost:
Annual demand (D) is 2,000 units
Cost per unit (C) is Rs. 1
Ordering cost (S) is Rs. 10 per order
Carrying cost rate (H) is 16% of the

unit cost per annum Carrying Cost:

Average inventory =

EOQ/2=500/2=250 units

Now looking at the carrying

cost per year.

Carry cost = average inventory multiplies it by the
carrying cost per unit.
Carrying cost = 250 × 0.16 =

40 Rs. per year Total

Inventory:

Ordering cost + carrying cost = total inventory cost