ABC Company supplies plastic crockery to fast food restaurants in metropolitan city. One of its products is a special bowl, disposable after initial use, for serving soups to its customers. Bowls are sold in pack 10 pieces at a price of Rs.50 per pack.
The demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The company purchases the bowl direct from manufacturer at Rs.40 per pack within a three days lead time. The ordering and related cost is Rs.8 per order. The storage cost is 10% per annum of average inventory investment. Calculate the EOQ.
Economic Order Quantity EOQ = √ 2 x A x O / Ci = √ 2 x 40,000 packs x 8 / 40 x 10% = 400 packs
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