(a) Re-ordering Level = Maximum consumption X Maximum re-order period

A= 75 X 6 450 units
B= 75 X 4 300 units

(b) Minimum Level = Re-order level - (Normal consumption X Normal re-order period

A= 450 - (50 X 5) 200 units

B= 300 - (50 X 3) 150 units

(c) Maximum Level = Re-order + Re-order quantity - (Minimum consumption X Mnimum re-ord

A= 450 + 300 - (25 X 4) 650 units

B= 300 + 500 - (25 X 2) 750 units

(d) Average Stock Level = Minuimum Level + Maximum Level

2

A= 200 + 650
2 425 units
B= 150 + 750
2 450 units
period

n X Mnimum re-order period)

 E.O.Q. = √(█(2𝐴𝐵@𝐶))

Where
A = Annual usage in units = 6,000 X 2 12000
B = Ordering cost per order = 45
C = Annual carrying cost of one unit 25 X 3% X 4 3

E.O.Q. = √(█(2 𝑋 12,000 𝑋

45@3)) 600 Units
A = Annual demand = Daily Demand X Days per year
B = Cost of placing an order = Ordering costs ÷ Orders
C = Carrying cost of one unit = Carrying costs ÷ Average inventory

The Formula for E.O.Q. =

√(█(2𝐴𝐵@𝐶))

E.O.Q. = √(█(2 𝑋 12,000 𝑋

100@30))
48 X 250 12000
₹ 4,000 / 40 ₹ 100 per order
₹ 6,000 / 200 ₹ 30 per unit

283 units
Economic Order quantity
A = Annual requirement = 4,000 units per month X 12 months 48,000
B = Ordering cost per order ₹ 120
C = Carrying cost 10% X 20 2

E.O.Q. =
√(█(2𝐴𝐵@𝐶))

= √(█(2 𝑋 48,000 𝑋
120@2))

2,400 units
 E.O.Q. = = √(█(2 X 24,000 X
√(█(2AB@C)) 90@3)) 1,200 Kg.

A = Annual Consumption of input = 1,000 X 12 X 2

B = Ordering cost per order ₹ 90
C = Carrying cost per kg. p.a. = ₹ 25 X 6% X 2

Total Annual Carrying and Ordering Costs

1. No. of orders = A / EOQ 24,000 ÷ 1,200

2. Total ordering costs = No. of orders X Order cost = 20 X 90
3. Total carrying costs = EOQ*1/2 *C= 1200*1/2* 3
4. Total Costs = 1,800 + 1,800
24000 kgs.

20
1800
1,800
3600
 (i) E.O.Q. =
√(█(2AB@C))

A = Annual demand of fertilizer bags

B = Relevant ordering cost per purchase order
C = Annual relevant carrying cost per bag

EOQ for Super Grow Fertilizer

= √(█(2 X 2,000 X 1,200@
480)) 100 bags

EOQ for Nature's Own Fertilizer

= √(█(2 X 1,280 X
1,400@560)) 80 bags

(ii) Total Annual Relevant Costs = Total annual ordering costs + Total annual elevant carrying cost

Total annual relevant costs for Super Grow Fertilizer

2,000 bags X ₹ 1,200 + 1 X 100 bags X ₹ 480 ₹ 24,000 + ₹ 24,000 48000
100 bags 2

Total annual relevant costs for Nature's Own Fertilizer

1,280 bags X ₹ 1,400 + 1 X 80 bags X ₹ 560 ₹ 22,400 + ₹ 22,400 44800
80 bags 2

(iii) Number of Deliveries = Number of deliveries for Nature's Own Fertilizer per year

2,000 bags 20 orders

100 bags

Number of deliveries for Nature's Own Fertilizer per year

1,280 bags 16 orders

80 bags
elevant carrying costs

er year
 (a) Economic Order Quantity (EOQ ) =
√(█(2AB@C))

A = Annual demand = 300 X 4 1200 units

B = Ordering cost ₹ 600
C = Carrying cost per year = (15% + 25%) 40%

EOQ = √(█(2 X 1,200 X

600@16)) 300 units

(b) Number of Orders = Annual demand = 1,200 = 4 orders per year

EOQ 300

(c) Time lag between consecutive orders = 12 months = 12 = 3 months

Number of orders 4

Statement showing Total Cost a Different Ordeing Quantity

Order Size 300 units 600 units
Cost of Item (1,200 X ₹ 40) 48,000 48,000
Less : Discount @ 5% … 2,400
Net Cost of Items 48,000 45,600
Add: Order Cost (Note 1) 2,400 1,200
Add : Carrying Cost (Note 2) 2,400 4,560
Total Cost (including Items Cost) 52,800 51,360

Note 1 : (a) Total ordering cost if order size is 300 units : 1200/ 300* 600= Rs 2400
(b) Total ordering cost if order size is 600 units : 1200/ 600* 600= Rs 1200

Note 2: (a) Total carring cost if order size is 300 units : 1/ 2* 300*16 = 2400
(b) Total carring cost if order size is 600 units: 1/ 2* 600*(0.40*38)=4560
ths