# Answer to Question #47728 in Other Economics for Anurodh

Question #47728

The production department for a company requires 7200kg of raw material for manufacturing

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.

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.

Expert's answer

D = 7200 kg per year,c = 20. K = 72, h = 25% of the investment in the inventories.

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.

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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