Assuming in your business, the cost per order for your product is N4,000 Naira and its carrying cost is N400 Naira per unit per annum. Your business has a demand for 20,000 units per year. Calculate the Order size, Total Orders required during a year, total carrying cost & total ordering cost for the year.

Solution(By Examveda Team)

EOQ
= √(2 × Quantity × Cost Per Order / Carrying Cost)
= √(2 × 20000 × 4000 / 400) = 633

Total Orders required during a year
= Total Quantity / EOQ
= 20000/633 = 32

Total carrying cost
= Average Inventory x Carrying Cost
= EOQ/2 x N 400
= 633/2 x N 400
= N 126600

Total ordering cost
= No of Order x Cost Per Order
= 32 x N4000
= N 128000