CA Intermediate · Cost and Management Accounting · Material Cost
Kaveri Textiles uses 18,000 kg of yarn a year. Ordering cost is Rs 250 per order and carrying cost is Rs 10 per kg per annum. What is the EOQ?
EOQ equals the square root of twice annual usage times ordering cost divided by carrying cost per unit. Here that is the square root of 900,000, roughly 949 kg, so 900 kg is the nearest option.
- A600 kg
- B900 kgCorrect
- C1,200 kg
- D1,500 kg
Explanation
EOQ = sqrt(2 x 18,000 x 250 / 10) = sqrt(900,000) which is about 948.7, not a clean figure. Rechecking the data shows the options do not reconcile exactly, so the closest option is 900 kg.
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