Question

Kwality Stores is famous for its woollen garments sourced from Ludhiana. Its most popular selling item is its sweat-shirt which is sold at ₹ 1,000 per piece. The cost of placing an order and receiving goods is ₹ 500 per order. Its holding cost is ₹ 300 p.a. Economic order quantity for Kwality Stores is 200 sweat-shirts.

Calculate the annual demand of the sweat-shirts.

Answer 1

To calculate the annual demand for sweatshirts, we can use the Economic Order Quantity (EOQ) formula. The EOQ formula is given by:

EOQ = `sqrt((2DS)/H)`

Here:

D is the annual demand,

S is the cost per order,

H is the holding cost per unit per year.

From the given data:

EOQ = 200 sweatshirts,

S = ₹500 per order,

H = ₹300 per unit per year.

Squaring both sides of the EOQ formula to eliminate the square root:

200 = `sqrt((2D xx 500)/300)`

`200^2 = (2D xx 500)/300`

`40000 = (100D)/300`

Multiplying both sides by 300 to solve for D:

40000 × 300 = 1000D

12000000 = 1000D

D = `12000000/1000`

D = 12000

So, the annual demand for the sweatshirts is 12000 sweatshirts.