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Question
VG Ltd. uses EOQ logic to determine the order quantity for its various components and plan its orders. The Annual consumption is 80,000 units, Cost to place one order is ₹ 1,200; Cost per unit is ₹ 50 and carrying cost is 6% of Unit cost.
What is the EOQ for VG Ltd.?
How will the calculation of EOQ benefit VG ltd.?
Solution
Given - D = 80,000 C= 6% × 50 = 3 P = 1200
EOQ = `sqrt((2"DP")/"C")`
= `sqrt((2 xx 80,000 xx 1,200)/3)`
`= sqrt(6,40,00,000)`
EOQ = 8,000 units
Calculation of EOQ will
- determine the ideal quantity for which an order should be placed so that there is no stock-out situation.
- help the company to assess the required quantity of raw material and supplies. The stock of raw materials should not be so huge that it incurs additional inventory holding costs.
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