CA Inter P4 · Chapter 2 · Question 1 of 12
Annual requirement of a raw material is 32,400 units. Ordering cost is ₹200 per order, the purchase price is ₹60 per unit and the carrying cost is 15% per annum of the purchase price. The Economic Order Quantity (EOQ) is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 1,200 units
Explanation
Carrying cost per unit per annum = 15% x ₹60 = ₹9. EOQ = sqrt(2AO/C) = sqrt(2 x 32,400 x 200 / 9) = sqrt(14,40,000) = 1,200 units. Omitting the 2 gives about 849 units, while using the purchase price instead of the carrying cost gives about 465 units (both rounded to the nearest unit).
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