GATE ME 2015 Set 2 — Question 34
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Industrial Engineering → Inventory Control → EOQ Model
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Question
Annual demand of a product is 50000 units and the ordering cost is Rs. 7000 per order. Considering the basic economic order quantity model, the economic order quantity is 10000 units. When the annual inventory cost is minimized, the annual inventory holding cost (in Rs.) is ________
Correct answer
34000 to 36000
Solution
In the basic Economic Order Quantity (EOQ) model, the total annual cost is the sum of the annual ordering cost and the annual holding cost. Annual Ordering Cost =
Annual Holding Cost = where is the annual demand, is the order quantity, is the ordering cost per order, and is the holding cost per unit per year. The EOQ is the value of that minimizes the total cost. At this optimal point, the annual ordering cost is exactly equal to the annual holding cost.Given:
units
unitsAnnual Ordering Cost at EOQ = .Since the annual inventory cost is minimized at EOQ, the annual inventory holding cost must also be Rs. 35000.
Annual Holding Cost = where is the annual demand, is the order quantity, is the ordering cost per order, and is the holding cost per unit per year. The EOQ is the value of that minimizes the total cost. At this optimal point, the annual ordering cost is exactly equal to the annual holding cost.Given:
units
unitsAnnual Ordering Cost at EOQ = .Since the annual inventory cost is minimized at EOQ, the annual inventory holding cost must also be Rs. 35000.
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