Answer to Question #47728 in Other Economics for Anurodh
particular item per year. It has been estimated that the cost of placing an order is A 72 and the
cost of carrying inventory is 25 percent of the investment in the inventories. The price of raw
material is A 20 per kg. Find the economic order quantity (EOQ), the total cost per unit time
and the cycle time.
Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs.
EOQ = (2D*K/h)^0.5 = (2*7200*72/0.25*20)^0.5 = 455.4
Total cost per unit = purchase cost or production cost + ordering cost + holding cost = 20 + 72 + 20*0.25 = 97
Cycle time = 311/(D/EOQ) = 311/(7200/455.4) = 19.7 days.
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