CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Meera Traders uses 36,000 units a year. Ordering cost is Rs 100 per order and carrying cost is Rs 2 per unit per year. At EOQ, what is the total annual ordering cost plus carrying cost?
At EOQ, ordering cost equals carrying cost, so total cost is twice the carrying cost, which is the square root of 2DOC. For the given data this is about Rs 3,795, so none of the listed amounts is exact.
- ARs 2,400
- BRs 3,000
- CRs 3,600Correct
- DRs 6,000
Explanation
EOQ = sqrt(2 x 36,000 x 100 / 2) = sqrt(3,600,000) = about 1,897. Total cost at EOQ = sqrt(2 x D x O x C) = sqrt(2 x 36,000 x 100 x 2) = sqrt(14,400,000) = about 3,795. That is not among the options, so this item is flawed; the nearest listed value is Rs 3,600 only if EOQ were 1,800.
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