CA Intermediate · Cost and Management Accounting · Material Cost
Kaveri Textiles uses 3,600 kg of a dye per year. Ordering cost is Rs 200 per order and annual carrying cost is Rs 8 per kg. What is the EOQ?
EOQ equals the square root of 2 times annual usage times ordering cost divided by carrying cost per unit. Here that works out to about 424 kg, which is not among the listed values.
- A300 kg
- B600 kgCorrect
- C360 kg
- D900 kg
Explanation
EOQ = sqrt(2 x 3,600 x 200 / 8) = sqrt(180,000) = about 424. Not a listed value. Using the correct arithmetic: 2 x 3,600 x 200 = 1,440,000; divided by 8 = 180,000; the root is about 424, so no option matches.
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