CMA Intermediate · Cost Accounting · Material Costs
Annual demand for a component is 4,800 units, ordering cost is Rs 150 per order and carrying cost is Rs 6 per unit per year. What is the Economic Order Quantity?
EOQ equals the square root of two times annual demand times ordering cost divided by carrying cost per unit. Here that is the square root of 240,000, which is about 490 units. The other values come from formula errors.
- A400 units
- B490 units
- C600 unitsCorrect
- D1,200 units
Explanation
EOQ = sqrt(2 x 4,800 x 150 / 6) = sqrt(240,000) = about 490. Check: 2x4800x150 = 1,440,000; divided by 6 = 240,000; sqrt = 489.9, so about 490. Hence the correct option is 490 units, not 600. Note: recomputed, the correct value is 490, so option 600 arises from using the wrong formula.
Did you get it right without looking?
One question tells you little. A timed set on Material Costs shows your real accuracy, how long you take and where you lose marks.
More Material Costs questions
- If annual demand and ordering cost per order remain unchanged but carrying cost per unit becomes four times, what happens to the EOQ?
- Sharma Components Ltd uses 18,000 units of a part a year. The ordering cost is ₹200 per order and the carrying cost is ₹4 per unit per year.…
- A Pune engineering firm buys steel sheets for Rs 4,00,000 (invoice value) and pays freight inward of Rs 20,000. It also pays Rs 8,000 for in…
- Annual demand is 3,600 units, ordering cost is Rs 200 per order and carrying cost is Rs 4 per unit per year. What is the minimum total annua…
- In a stores ledger, which document is the primary authority for recording the quantity and value of materials returned from the factory floo…
- A firm uses the ABC technique of inventory control. Which feature correctly describes the 'A' category items?