Question

‘Kwality Book Store’ sells 40,000 chart papers per year. The demand is constant throughout the year. The purchase cost is ₹ 10 per chart paper. Holding cost per annum is 20% of purchase cost, ordering cost is ₹ 100 per order.

Calculate the Economic Order Quantity.

Answer 1

The EOQ formula is given by:

`Q = sqrt((2PD)/C)`

where:

D = 40,000 (Annual demand)

P or S = 100 (Ordering cost per order)

C or H = 20% of purchase cost = 20% × 10 = 2 (Holding cost per unit per year)

Substituting the values:

EOQ = `sqrt((2xx40000xx100)/2)`

`= sqrt(8000000/2)`

`= sqrt4000000`

= 2000

The Economic Order Quantity (EOQ) is 2000 units.