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Help me

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Arka Bose

None

313 Points Posted on 26 March 2010

Find EOQ and Annual demand from the following:

Lead time and consumption are constant and safety stock is Rs 10000.

Maximum Level is 4 times the safety stock and carrying cost is 20% per annum.The carrying cost at optimum order size is Rs 6000 which also includes the carrying cost of safety stock.

Cost of placing an order is Rs 6000.

Replies (4)

ViveK

312 Points Posted on 27 March 2010

carrying cost =20% of avg inventory

avg inventory=carrying cost/20%

=6000/20%

= 30000

value per order =2 * 30000= 60000

annual demand=x

EOQ=under root (2 *x*6000/.20)

60000*60000=2*x*6000/.20

by solving this annual demand =60000

verify

at EOQ carrying cost=ordering cost=6000

i think this is correct??

Arka Bose

None

313 Points Posted on 27 March 2010

we can obviously see that TCC=TOC when Q=Rs60000

But from where are u getting this Rs60000? where did u get this formula? Value Per order=2x30000=Rs 60000?

ViveK

312 Points Posted on 27 March 2010

there is no need for any formula or u can say just go in reverse order to what u use to do for calculating total carrying cost

its total carrying cost= 20% of stock (its calculated on avg. stock)

and avg. stock is half the order/EOQ/optimum order etc

Arka Bose

None

313 Points Posted on 27 March 2010

well,then something must be wrong, Max Level=Ordering Level+EOQ-CxL+Safety Stock,so if we put the same,the equation is not followed up as it says Max Level=4 times the Safety Stock