Find the economic batch quantity for the given data: Annual requirement of parts 800, inventory cost 10% of value/year, the setup cost is Rs. 200 per setup and the cost per part Rs. 20.

Concept:

The ordering quantity Q* at which holding cost becomes equal to ordering cost and the total inventory cost is minimum is known as Economic order Quantity (EOQ).

At EOQ:

Ordering cost = Holding cost

D = Annual or yearly demand of inventory (unit/year)

Q = Quantity to be ordered at each order point (unit/order)

Co = Cost of placing one order [Rs/order]

Ch = Cost of holding one unit in inventory for one complete year [Rs/unit/year]

Calculation:

D = 800 units, Co = Rs. 200, Ch = 10% of value/year = Rs. 2