Question

Annual demand of valves per year in a company is 10,000 units; the current order quantity is 400 valves per order. The holding cost is Rs. 24 per valve per year & the ordering cost is Rs. 400 per order. If the current order quantity is changed to Economic Order Quantity, then saving in the total cost of inventory per year will be Rs. . (Round off to two decimal places)

• A. 943.594

Answer 1

The correct option is A 943.594
$\text{As per given data}$

$\text{Annual demand, D = 10000 units}$

$\text{Q = 400/order}$

$\text{Holding cost}\left(C_h\right)=Rs.24\text{unit/year}$

$\text{Ordering cost}\left(C_o\right)=Rs.400\text{/order}$

$(TIC{)}_I=\frac{D}{Q}\times C_o+\frac{Q}{2}\times C_h$

$=\frac{10000}{400}\times 400+\frac{400}{2}\times 24$

$\text{= Rs. 14800/year}$

$\text{If order quantity changed to EOQ,}$

$TI{C}^{\ast }=\sqrt{2D{C}_o{C}_h}$

$=\sqrt{2\times 10000\times 400\times 24}$

$\text{= Rs. 13856.406/year}$

$\text{Hence, total cost saving per year}$

$=(TIC{)}_I-TI{C}^{\ast }$

$=14800-13856.406=Rs.943.594\text{/year}$