Economic Order Quantity
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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 reorder 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 order per per year order
Values per order (Rs.)
Ordering Carrying Total cost Cost cost (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
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 reorder 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 order per per year order
Values per order (Rs.)
Ordering Carrying Total cost Cost cost (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
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