Question

The monthly demand for a product is Rs 3,000 of sales. Annual carrying cost is Rs. 2000. The ordering cost per order is Rs 500. What is the EOQ ?

• A. Four months of sales
• B. Six months of sales
• C. One month of sales
• D. Three months of sales

Answer 1

The correct option is D Three months of sales

$\text{At EOQ,}$

$\text{Inventory carrying cost = Ordering cost}$

$2000=\frac{A}{Q}\times 500$

$\frac{A}{Q}\text{= No. of orders = 4}$

$\text{Hence, EOQ = 3 months of sales.}$