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Question

# A food processing company uses 25,000 kg of corn flour every year. The quantity - discount price of corn flour is provided in the table below. Quantity (kg) Unit Price (Rs/kg) 1 - 749 70 750 - 1499 65 1500 and above 60 The order processing charges are Rs. 500/ order. The handling plus carry-over charge on an annual basis is 20% of the purchase price of the corn flour per kg. The optimal order quantity (in kg) is 1500

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Solution

## The correct option is A 1500Annual demand, D = 25000 kg, Ordering cost, Co=Rs.500/order Carrying cost or holding cost, Ch= 20% of unit surface price. In order to get EOQ, start checking from the lowest price. 1st case: EOQ, Q∗=√2DCoCh=  ⎷2×25000×50020100×60 = 1443.376 kg (not feasible) II case: EOQ, Q∗=√2DCoCh=  ⎷2×25000×50020100×65 = 1386.75 kg (feasible) Total annual cost =DC+√2DCoCh =65×25000+√2×25000×500×0.2×65 =162500+18027.76=Rs.1643027.76 For 1500 kg, Annual cost=DC+DQc0+Ch2Q =25000×60+1500×20×602×100+250001500×500 =Rs.1517320.51 So, at 1500 kg purchase, cost is minimum then EOQ = 1500 kg

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