CMA Intermediate · Cost Accounting · Material Costs
Sharma Components Ltd uses 18,000 units of a part a year. The ordering cost is ₹200 per order and the carrying cost is ₹4 per unit per year. What is the Economic Order Quantity?
EOQ equals the square root of two times annual demand times ordering cost divided by carrying cost per unit. With 18,000 units, ₹200 and ₹4, that gives about 1,342 units, so none of the options is correct.
- A1,200 units
- B1,500 units
- C1,800 unitsCorrect
- D900 units
Explanation
EOQ = √(2 × 18,000 × 200 / 4) = √1,800,000 = 1,342 approx? Recheck: 2×18,000×200 = 7,200,000; divided by 4 = 1,800,000; the square root is about 1,342, which is not an option, so the data must be corrected. Correct figure: carrying cost ₹4 gives 1,342, so this item is invalid.
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