Model Problems on –Inventory Management

[Economic Order Quantity-E.O.Q]

Sr  Ans
Problems 
No.  & 
Remark
Ans 
1  Calculate  the Economic Order Quantity from  the  following information.  Also 
2500 kg 
state the Number Of Orders to  be  placed in a year.  4  orders 
  p.a  
Consumption of  materials per annum    :      10,000  kg 
 
Order  placing cost  per  order                            :      50 
 
Cost  per  kg. of  raw  materials                             :       2 
 
Storage costs                                          :       8% on average inventory
 
2  Anil company buys its annual requirement of 36,000 units in six installments. EOQ‐
3000 
Each unit costs Rs.1 and the ordering cost is Rs.25. The inventory carrying cost is Saving By 
EOQ 
estimated at 20% of unit value. Find the total annual cost of the existing Rs.150 
inventory policy. How much money can be saved by using E.O.Q? 36750 vs. 
36600  
 
3  The annual demand for an item is 3,200 units. The units cost is Rs.6 and a.800 
inventory carrying charges is 25% p.a. If the cost of one procurement is Rs.150, b.4 
c.3 
determine:
 
(a) E.O.Q (b) No. of orders per year
(c) Time between two consecutive orders.
4  A company manufactures a special product which requires a component ‘Alpha’. a.200 
The following particulars are collected for the year 2012. units 
b.EOQ 
1. Annual demand of Alpha 8,000 units 32,16,000 

2. Cost of placing an order 200 per order

 Quantity 
Discount 
32,26,000 
3. Cost per unit of Alpha 400
4. Carrying cost % p.a. 20%
The company has been offered a quantity discount of 4% on the purchase of ‘Alpha’
provided the order size is 4,000 components at a time.
Required:
(a) Compute the economic order quantity.
(b) Advise whether the quantity discount offer can be accepted.

5  PC Company purchases a specialized item and the quantity to be purchased is 2,500 Q.3b 
[Dec‐13 
pieces at a price of ` 200 per piece. Ordering cost per order is ` 200 and carrying cost is Cost 
2% per year of the inventory cost. Normal lead time is 20 days and safety stock is nil. Inter 
Assume yearly working days as 250.
Calculate i)the Economic Ordering Quantity.
ii) Re-order Inventory Level.
iii) If a 2% discount on price is given for order quantity 1,250 pieces or more in
a lot, should the company accept the offer of discount?

 
 

6  PQR Limited produces a product which has a monthly demand of 52,000 units. Eg‐16 
The product requires a Component X which is purchased at Rs. 15 per unit. For [CMA] 
 
every finished product, 2 units of Component X are required. The ordering cost
is Rs. 350 per order and the carrying cost is 12% p.a.

Required:
(a) Calculate the economic order quantity for Component X.
(b) If the minimum lot size to be supplied is 52,000 units, what is the extra
cost, the company has to incur?
(c) What is the minimum carrying cost, the company has to incur?

7  From the following particulars with respect to a particular item of materials of a Eg‐17 
manufacturing company, calculate the best quantity to order: [CMA] 
 
Ordering Quantities[Tons] Price per ton
Less than 250 6.00
250 but less than 800 5.90
800 but less than 2,000 5.80
2,000 but less than 4,000 5.70
4,000 and above 5.60
The annual demand for the material is 4,000 tonnes. Stock
holding costs are 20% of material cost p.a.
The delivery cost per order is Rs.6.00
8  M/s Tubes Ltd. are the manufacturers of picture tubes for T.V. The following Eg‐23 
are the details of their operation during the year 2012: [CMA] 
 
Average monthly market demand 2,000 Tubes
Ordering Cost 100 per order
Inventory carrying cost 20% per annum
Cost of tubes 500 per tube
Normal usage 100 tubes per week
Minimum usage 50 tubes per week
Maximum usage 200 tubes per week
Lead time to supply 6 – 8 weeks
Compute from the above:
(i) Economic order quantity. If the supplier is willing to supply quarterly 1,500
units at a discount of 5% is it worth accepting?
(ii) Maximum level of stock
(iii) Minimum level of stock
(iii) Re-order level
 

 
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4 
CA S/N 

10  CAS/N 
Q.1 

11  CAS/N 
Q.3 

12  CAS/N 
Q.7