Skip to content

CMA Intermediate · Operations Management and Strategic Management · Economics of Maintenance and Spares Management

A textile mill uses a spare part with annual demand of 1,600 units. Ordering cost is ₹400 per order and carrying cost is ₹8 per unit per year. What is the economic order quantity (EOQ) for this spare?

The EOQ is 400 units. It equals the square root of 2 times annual demand 1,600 times ordering cost ₹400, divided by carrying cost ₹8, which is the square root of 160,000. At this quantity annual ordering and carrying costs are equal at ₹1,600.

  1. A400 unitsCorrect
  2. B283 units
  3. C566 units
  4. D200 units

Explanation

EOQ = sqrt(2 x 1,600 x 400 / 8) = sqrt(160,000) = 400 units. Check: orders = 4 per year, ordering cost 1,600 and carrying cost 200 x 8 = 1,600, which are equal. 283 results from omitting the factor 2 in the numerator and is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Economics of Maintenance and Spares Management shows your real accuracy, how long you take and where you lose marks.

Practise Economics of Maintenance and Spares ManagementFree diagnostic mock

More Economics of Maintenance and Spares Management questions