CA Intermediate · Cost and Management Accounting · Material Cost
Sundaram Auto buys a component with annual demand of 18,000 units. Ordering cost is Rs 200 per order and carrying cost is Rs 4 per unit per year. The supplier offers no discount. What is the number of orders placed in a year at the Economic Order Quantity?
The EOQ formula gives about 1,342 units, which implies roughly 13.4 orders a year, so none of the listed options matches exactly. This question should not be used.
- A10 orders
- B12 orders
- C15 ordersCorrect
- D20 orders
Explanation
EOQ = square root of (2 x 18,000 x 200 / 4) = square root of 1,800,000 = approximately 1,341 units. Wait, using exact data: 2 x 18,000 x 200 = 7,200,000; divided by 4 = 1,800,000; root is about 1,342 units. Orders = 18,000 / 1,342 = about 13.4, which does not fit the options, so recheck with carrying cost Rs 4: the option closest by clean calculation is not available.
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