Inventory Management

Q1 Calcualte EOQ if annual

requirement of a product is 60000
units, Ordering cost of Rs 100 per
order and carrying cost is Rs 3 per
unit.
Annual Requirement 60000 units, Carrying cost p.u Rs 3 p.u.

Purchase Price Rs 10 per unit

Order Size 2000 units 3000 units 6000 units
No. of Orders 30 orders 20 orders 10 orders
Ordering cost
Per order Rs 100 Rs 100 Rs 100
Total Ordering Rs 3000 Rs 2000 Rs 1000
Cost
Average Inventory 1000 units 1500 units 3000 units
= Order Size/2
Total Carrying Cost Rs 3000 Rs 4500 Rs 9000
Total Ordering 6000 6500 10000
and Carrying Cost
Frequency of Order = 360/30 = 360/20 =360/10
Levels of Inventory
• Stock Level
• Minimum Level
• Maximum Level: Overstocking
• Reorder level
Q2. Annual Requirement = 1600 units
Ordering cost per order = Rs 100
Carrying cost per unit = Rs 8 p.u.

Usage Time
Minimum 5 units 2 days
Normal 10 units 3 days
Maximum 15 units 4 days
Sol: Reorder level = Max usage * Max time
= 15 * 4 = 60 units
Maximum level = Reorder level + Reorder Qt – ( minimum usage * min time)
= 60 +200 – ( 5*2) = 250 units
Minimum level = Reorder level – (Normal Usage * Normal Time)
= 60 – (10 *3) = 30 units
Average Level = (Min + Max)/2 = (250+30)/2 = 140 units
Or , Reorder Qt/2 + Minimum Level = 200/2 + 30 = 130 units
Q 3 Annual Req = 4000 units
Ordering cost = Rs 40 per order
Carrying cost = Rs 2 per unit
Calculate EOQ?
Usage Time
Min 10 3
Normal 20 5
Max 30 7

Calculate Reorder level, Min Level, Max Level and Avg Level.
Formulae:
Reorder level = Max usage * Max time
Maximum level = Reorder level + Reorder Qt – ( minimum
usage * min time)
Minimum level = Reorder level – (Normal Usage * Normal
Time)
Average Level = (Min + Max)/2
Q4. Calculate EOQ, No. of orders, Total Ordering cost, Total Carrying
Cost, Frequency of Order using the following information:
Annual Requirement = 4800 units
Ordering cost = Rs 50 per order
Carrying cost = 12 % of Purchase Price
Purchase Price = Rs 100.

Order Size: (1) 200 units (2) 400 units.