Mid Exam Problem: A Bicycle manufacturing company managing its warehouse.

As
per its manufacturing requirement & to fulfil its demand, they need to procure a
product at a rate of 30000 units per year. Ordering cost per order including
transportation & documentation is Rs.2400. Holding cost per unit is Rs.2 per year.
Calculate Economical Order Quantity of the Product, and number of orders per
year.

Solution:

The EOQ formula: Q=

√ 2 AD
H

Where:

D = Demand (units per year) = 30,000 units

A = Ordering cost per order = Rs. 2400

H = Holding cost per unit per year = Rs. 2

EOQ=
√ 2 X 2400 X 30000
2

EOQ = √ 72,000,000
EOQ = 8485

Now, to calculate the number of orders per year, we use the formula:

Number of Orders= Annual Demand / EOQ

Number of Orders= 30000 / 8485 = 3.53 OR 4

So, the company would place 4 orders per year to meet its demand efficiently.