CA Intermediate · Cost and Management Accounting · Material Cost
Kaveri Textiles buys yarn in lots. Annual requirement is 14,400 kg, ordering cost is Rs 100 per order and carrying cost is Rs 2 per kg per year. What is the EOQ?
The EOQ is 1,200 kg. It is the square root of 2 x 14,400 x 100 divided by 2, which is the square root of 1,440,000. At this size, ordering cost and carrying cost are both Rs 1,200 a year.
- A1,200 kgCorrect
- B1,440 kg
- C600 kg
- D2,400 kg
Explanation
EOQ = sqrt(2 x 14,400 x 100 / 2) = sqrt(1,440,000) = 1,200 kg. Check: orders = 14,400/1,200 = 12, ordering cost = 1,200 and carrying cost = (1,200/2) x 2 = 1,200, which are equal as required at EOQ. The 1,440 option comes from missing the square root logic or mishandling the figures.
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