CMA Intermediate · Financial Management and Business Data Analytics · Inventory Management
Sundaram Traders has annual demand of 14,400 units, ordering cost of Rs 100 per order and carrying cost of Rs 8 per unit per year. Using the basic EOQ model, what is the EOQ?
EOQ is the square root of 2 times annual demand times ordering cost divided by carrying cost per unit, which is the square root of 360,000, or 600 units. At this size, ordering and carrying costs are equal at Rs 2,400 each.
- A600 unitsCorrect
- B300 units
- C1,200 units
- D900 units
Explanation
EOQ = sqrt(2 x 14,400 x 100 / 8) = sqrt(360,000) = 600 units. Check: orders = 14,400/600 = 24, ordering cost 2,400, carrying cost 300 x 8 = 2,400, so the two are equal. 300 results from halving the figure wrongly.
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