Question

Tutu Pump Co. uses about 7500 valves per year, which is constant throughout the year. The valve costs ₹ 15 per unit and the carrying cost is estimated to be ₹ 3 per unit. The cost of placing an order and its processing is ₹ 18. Calculate the Economic Order quantity (EOQ). Give any one benefit that Tutu Pump Co. derives after calculating the EOQ.

Answer 1

C = ₹ 3

P = ₹ 18

D = 7500

EOQ = `sqrt2 × P × D/3`

= `sqrt2 × 18 × 7500/3`

= 300 units

Benefits of calculating EOQ:

Ensures that there is no stock-out situation and the cost of carrying and placing the order is minimised.