Question

Market demand for springs is 8,00,000 per annum. A company purchases these springs in lots and sells them. The cost of making a purchase order is Rs. 1,200. The cost of storage of springs is Rs. 120 per stored piece per annum. The economic order quantity is

• A. 400
• B. 2,828
• C. 8,000
• D. 4,000

Answer 1

The correct option is D 4,000

$\text{Given data,}$

$\text{Demand (D) = 8,00,000 per annum}$

$\text{Order cost}{C}_0=\text{Rs. 1200 per order}$

$\text{Holding cost}{C}_h=\text{Rs. 120 per stored piece per annum}$

We know that,

$EOQ=\sqrt{\frac{2C_{0}D}{C_h}}$

$=\sqrt{\frac{2\times 800000\times 1200}{120}}=4000$