Problems on EOQ and Reorder Level

A company uses 5,000 units of raw material per year. The cost per order is ₹200 and the holding cost per unit per year is ₹10. Calculate the Economic Order Quantity (EOQ).

Solution:

Use the EOQ formula:

EOQ = √2DS / H)​​

Where:

• D = Annual demand = 5,000 units

• S = Ordering cost per order = ₹200

• H = Holding cost per unit per year = ₹10

EOQ = √(2×5000×200 / 10) = √(2000000 / 10) = √200000 ≈ 447.21

✅ Answer: EOQ ≈ 447 units

🧮 2. Reorder Level Problem

Problem:

A company uses 400 units of material per week. The lead time is 5 weeks. Calculate the Reorder Level.

Solution:

Use the formula:

Reorder Level = Usage per period × Lead time

$$\text{Reorder Level }=400\times 5=2000\text{ units}$$

✅ Answer: Reorder Level = 2,000 units