Question
Download Solution PDFThe demand rate for a particular item is 12000 units/year. The ordering cost is Rs.100 per order and the holding cost is Rs.0.80 per item per month. If no shortages are allowed and the replacement is instantaneous, then the economic order quantity is
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
This model is used when the replacement is instantaneous and no shortage is allowed. The Economic Order Quantity for this model is given by Wilson Formula.
\({Q^*} = \sqrt {\frac{{2D{C_o}}}{{{C_h}}}} \)
where Q* = Economic Order Quantity (Units), D = Demand rate (Units/month or Units/year), Co = Ordering cost/order (Rs.), Ch = Handling cost (Rs./unit/year)
[Note: Time unit of Demand & Handling Cost must be same i.e. units/year or units/month]
Calculation:
Given:
D = 12000 units/year, Co = Rs. 100, Ch = Rs. 0.80/unit/month ⇒ Rs. 0.80 × 12/unit/year
∵\(\;{Q^*} = \sqrt {\frac{{2D{C_o}}}{{{C_h}}}} \)
\( \Rightarrow {Q^*} = \sqrt {\frac{{2 \times 12000 \times 100}}{{0.80 \times 12}}} \)
⇒ Q* = 500 units.
Last updated on Jun 7, 2025
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