The annual demand of valves per year in a company is 10,000 units. The current order quantity is 400 valves per order

Q. The annual demand of valves per year in a company is 10,000 units. The current order quantity is 400 valves per order. The holding cost is Rs. 24 per valve per year and the ordering cost is Rs. 400 per order. If the current order quantity is changed to Economic Order Quantity, then the saving in the total cost of inventory per year will be

Ans: Rs. 943.59

Sol:

D = 10,000 units
Q = 400 units/order
C_h = 24 Rs/value/year
C_o = 400 Rs/order
= 10000 + 4800 = Rs. 14800

= √2 × 10000 × 400 × 24 = Rs. 13856.41
Saving = 14,800 – 13856.41
Saving = Rs. 943.59