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ECONOMIC ORDER QUANTITYPREREQUISITES,  Cost, , of placing an order- preparation of, , purchase order, cost of receiving goods,, documentation, transport, cost of rejecting goods,, cost for frequent small qty orders, set up cost of, manufactured material internally,  Cost, , of Carrying Stock- rent, lighting,, , heating, refrigeration, air conditioning, stores, staffing, stores maintenance, handling costs,, stock taking, perpetual inventory system,, obsolescence costs, insurance, security, cost of, capital, pilferage and damage

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ECONOMIC ORDER QUANTITYPREREQUISITES,  Annual, If, , consumption, , consumption is more, order size is bigger,, , carrying cost becomes higher., If, , consumption is less, order size is small,, , carrying cost becomes lower.

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METHODS OF EOQ, , Graphical, , Tabular, , Mathematical

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GRAPHICAL METHOD, Size of order on X axis,  Cost of order on Y axis,  Carrying cost line goes upward as the order size, increases,  Order cost line goes downward as the order cost, decreases with the decrease in order size,  Total cost line first slopes down, then goes, upward after a certain point,  Intersection point of order cost line and carrying, cost line is EOQ,  The touching point of EOQ line to total cost line, is the minimum cost of EOQ, 

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Y, , Cost, Rs., , Minimum, cost of, EOQ, , Carrying, Cost, , Order Size, , X

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TABULAR METHOD, Particulars, , Order, Size I, , Order, Size II, , Order, Size II, , 1, , Annual Consumption units, , XXX, , XXX, , XXX, , 2, , Order size units, , XX, , XXX, , X, , 3, , Number of orders 1÷2, , XXX, , XXX, , XXX, , 4, , Ordering cost per order Rs., , X, , X, , X, , 5, , Total order cost = 3×4, , XX, , XX, , XX, , 6, , Average Stock = Order size ÷ 2, , XX, , XX, , XX, , 7, , Carrying cost per unit Rs., , X, , X, , X, , 8, , Total carrying cost= 6 × 7, , XX, , XX, , XX, , 9, , Total Cost = 5 + 8, , XXX, , XX, , XXXX, , Lowest is the EOQ

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MATHEMATICAL EQUATION METHOD, A= Annual consumption units, O= Cost of placing one order, C= Carrying Cost

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PROBLEM, , , Megha Co. supplies following information,, calculate EOQ, Consumption per annum= 30000 kg, Cost of placing an order= Rs. 50, Cost of material= Rs. 5 per kg, Storage cost is 10% of average inventory.

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SOLUTION, A= 30000 kg i.e annual consumption,  O= Rs. 48 i.e. cost of placing one order,  C= carrying cost i.e. cost of holding one unit in, storage for one year= Rs.4 × 10% = Rs. 0.4, , , , , EOQ =, , 2AO/C

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SOLUTION, , (2 ×30000 × 48) 0.4, , =, , =, , 1073 kg

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THANK YOU.