CA Intermediate · Cost and Management Accounting · Material Cost
Kaveri Auto Components uses 18,000 units of a component a year. Ordering cost is ₹200 per order and carrying cost is ₹16 per unit per annum. The supplier offers no discount. What is the total annual relevant cost (ordering plus carrying) at the EOQ?
Total relevant cost at EOQ equals the square root of (2 × annual demand × ordering cost × carrying cost). With the given data this is not ₹4,800; the question's figures do not give a clean result.
- A₹4,800Correct
- B₹2,400
- C₹9,600
- D₹7,200
Explanation
EOQ = √(2 × 18,000 × 200 / 16) = √450,000 = approximately 671 units, but use exact cost: at EOQ ordering cost equals carrying cost, so total cost = √(2AOC) = √(2 × 18,000 × 200 × 16) = √115,200,000 = approximately ₹10,733. Since this does not match a clean figure, recheck: 2×18,000×200 = 7,200,000; ×16 = 115,200,000; root ≈ 10,733. The data do not reconcile with the options, so the stated key is not valid.
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