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A company has an annual demand (D) of 5,000 units for a particular product. The ordering cost (K) is Rs.25 per order, and the holding cost (H) is Rs.1 per unit per year. Calculate the Economic Order Quantity (EOQ). 500 600 700 800

Question

A company has an annual demand (D) of 5,000 units for a particular product. The ordering cost (K) is Rs.25 per order, and the holding cost (H) is Rs.1 per unit per year. Calculate the Economic Order Quantity (EOQ). 500 600 700 800

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Solution

The Economic Order Quantity (EOQ) is a production model that calculates the optimal quantity a company needs to order for its inventory management. The EOQ model aims to minimize the cost of ordering and holding inventory.

The formula for EOQ is:

EOQ = sqrt((2DK)/H)

Where: D = Demand rate K = Order cost H = Holding cost

Given: D = 5000 units K = Rs.25 per order H = Rs.1 per unit per year

Substituting these values into the formula, we get:

EOQ = sqrt((2500025)/1) EOQ = sqrt(250000) EOQ = 500 units

So, the Economic Order Quantity (EOQ) is 500 units.

This problem has been solved

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