ECONOMIC ORDER

QUANTITY

Submitted by:

Richa
Trivedi
Richa
Tiwari
Ruchi
Shrivastava
Bhavna
Arya
Sindhu
 ECONOMIC ORDER
QUANTITY
 Quantity for which order is place
everytime the stock reaches the re-
order level
 Also known as RE-ORDER QUANTITY
 It gives maximam economy in
purchasing any material and ultimately
contributes towards maintaining the
material at optimum level and at
minimum cost.
 COSTS TO BE TAKEN IN
ACCOUNT
 Ordering cost
 Cost of carrying stock
Ordering cost:
• It is the cost of placing an order with the
supplier.
• It decreases with increase in the size of order.
• Factors involved:
1.Cost of stationary
2.Salaries of those engaged in placing order
3.Salaries of those engaged in receiving and
inspection etc.
Cost of carrying stock:
• It is the of holding the stock in the
storage.
• It includes:
1.Cost of operating the store
2.Detoriaton an wastage of materials
3.Incidence of insurance cost
Methods for Calculating the EOQ
•Tabular Method
•Formula based
FORMULA BASED:

Formula:
(Square root of) 2.A.B./C.S.
Where A=Annual consumption in units
B=Buying or ordering cost per order
C=Cost per unit
S=Storage or carrying cost as a percentage of average
inventory

Alternatively: EOQ=(square root of) 2.A.B./S

Where S=Storage cost per unit annum
QUESTION 1:
•Estimated requirment of the year 600 units
•Cost per unit Rs.20
•Ordering cost Rs.12
•Carrying Cost(% of average inventory) 20%

QUESTION 2:
The annual demand for a product is 6400 units.Inventory carrying cost
is Rs.1.50 per unit per annum.If the cost of one procurement is
Rs.75,determine:
•Economic Order Quantity
•No. of orders per year
•Time between two consecutive orders
TABULAR METHOD:
•This method is used when prices vary according to the
quantity to be purchased.
•The most economic size of the quantity to order
i.e.,where the cost is least can be obtained using a table.

Illustration:Determine EOQ from the following information

using table.
•Annual consumption - 12000 units
•Cost of ordering - Rs.15 per order
•Cost of material - rs.1.25 per unit
•Carrying cost - 20% of average inventary
No.of Units Values Ordering Carrying Total
order per per cost Cost cost
per year order order (Rs.) (Rs.) (Rs.)
(Rs.)
1 12000 15000 15 1500 1515
2 6000 7500 30 750 780
3 4000 5000 45 500 545
4 3000 3750 60 375 435
5 2400 3000 75 300 375
6 2000 2500 90 250 340
7 1714 2142 105 214 319
8 1500 1875 120 188 308
9 1333 1667 135 167 302
10 1200 1500 150 150 300
11 1091 1364 165 136 301
THANKYOU