Question

Tutu Pump Co. uses about 7500 valves per year, which is constant throughout the year. The valve costs ₹15 per unit and the carrying cost is estimated to be ₹ 3 per unit. The cost of placing an order and its processing is ₹ 18. 

Calculate the Economic Order quantity (EOQ). Give any one benefit that Tutu Pump Co. derives after calculating the EOQ.

Answer 1

C = ₹ 3 

P = ₹ 18 

D = 7500 

EOQ = √2 x P x D/ 3 

= √2 x 7500 x 18/ 3 

= 300 units 

Benefits of calculating EOQ: 

Ensures that there is no stock-out situation and the cost of carrying and placing the order is minimised.