A Ltd. manufactures a product X which requires two raw materials A and B in a ratio of 1:4. The sales department has estimated a demand of 5,00,000…

Workings: Annual production of Product X = Annual demand – Opening stock = 5,00,000 - 12,000 = 4,88,000 units Annual requirement for raw materials = Annual production × Material per unit - Opening stock of material Material A = 4,88,000 × 4 units – 24,000 units = 19,28,000 units Material B = 4,88,000 × 16 units – 52,000 units = 77,56,000 units (i) Computation of EOQ when purchase order for the both materials is placed separately EOQ = √(2 × Annual Requirement for material × Ordering cost / Carrying cost per unit per annum) Material A = √(2 × 19,28,000 units × 15,000 / 13% of 150) = √(38,56,000 × ₹ 15,000 /19.5) = 54,462 units Material B = √(2 × 77,56,000 units × 15,000 / 13% of 200) = √(1,55,12,000 × ₹ 15,000 /26) = 94,600 units (ii) Computation of EOQ when purchase order for the both materials is not placed separately Material A & B = √(2 × (19,28,000 + 77,56,000) units × ₹ 15,000 / 13% of 190) = √(2 × 96,84,000 units × ₹ 15,000 /24.7) = √(1,93,68,000 × ₹ 15,000 /24.7) = 1,08,452 units Material A = (1,08,452 × 19,28,000) / 96,84,000 = 21,592 units Material B = (1,08,452 × 77,56,000) / 96,84,000 = 86,860 units