A company manufactures 5,000 units of a product per month. The cost of placing an order is ₹100. Purchase price of the raw material is ₹10 per kg. Average consumption of raw material is 275 kgs. per week. The carrying co

CS Executive · Cost and Management Accounting · PYQS · December 2014
A company manufactures 5,000 units of a product per month. The cost of placing an order is ₹100. Purchase price of the raw material is ₹10 per kg. Average consumption of raw material is 275 kgs. per week. The carrying cost of inventory is 20% per annum. The economic order quantity is —
(A) 1,196 kgs.
(B) 707 kgs.
(C) 2,449 kgs.
(D) 2,400 kgs.

Answer & Explanation:

Correct Answer: Option (A)

Correct answer: (A) 1,196 kgs.. Annual usage = 275×52 = 14,300 kg; carrying cost/kg = 10×20% = 2. EOQ = √(2×14,300×100/2) ≈ 1,196 kg.

Topics: Material Costing

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