[Janelle101]

Ramsaran requires 70,000 units of product G for the year, the units will be used evenly throughout the year, it costs $80 to place an order. Its carrying cost is $15 per unit. What is the EOQ?

Am I on the right track? :confused:

2 x 70,000 x 80 / 15 = 746,666.66 square root is = 864

[rehmanvohra]

You are on the right track. You can also prove your answer as follows:

Ordering costs
Number of orders per year = 70,000/864 = 81
Total ordering costs = 81 x 80 = $6,480

Carrying costs
Average inventory = 864/2 = 432 units
Total carrying costs = 432 x 15 = $6,480

Moral: Both these costs must be the same

[Janelle101]

Thank you very much.