CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Meera Traders uses 7,200 units a year. Ordering cost is Rs 100 per order and carrying cost is Rs 4 per unit per annum. What is the total of annual ordering and carrying cost at EOQ?
The total is Rs 2,400. EOQ is 600 units, giving 12 orders costing Rs 1,200 and average stock of 300 units costing Rs 1,200 to carry. At EOQ the two costs are equal, so both must be added.
- ARs 2,400Correct
- BRs 1,200
- CRs 3,600
- DRs 1,697
Explanation
EOQ = sqrt(2 x 7,200 x 100 / 4) = sqrt(360,000) = 600 units. Orders = 7,200/600 = 12, ordering cost = 12 x 100 = Rs 1,200. Carrying cost = 600/2 x 4 = Rs 1,200. Total = Rs 2,400. Rs 1,200 counts only one of the two equal components.
Did you get it right without looking?
One question tells you little. A timed set on Management of Inventory shows your real accuracy, how long you take and where you lose marks.
More Management of Inventory questions
- In the ABC (Always Better Control) analysis of inventory, items falling in category 'A' are those that:
- 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 t…
- Lakshmi Auto uses 12,000 units a year of a part costing Rs 50 each. Ordering cost is Rs 150 per order and carrying cost is 12% of purchase p…
- In ABC analysis of inventory control, items that form a small percentage of the number of items but a large percentage of total inventory va…
- A firm uses 60 units per day, with a lead time of 10 days and a safety stock of 150 units. What is its reorder level?
- Kaveri Plastics uses 36,000 units of raw material a year. Ordering cost is ₹250 per order and carrying cost is ₹5 per unit per year. Lead ti…