A company manufactures electronic gadgets and uses a specialized component. The company incurs an ordering cost of 1,250 per order. The carrying…
CA Intermediate · Cost and Management Accounting · PYQS · September 2025
A company manufactures electronic gadgets and uses a specialized component. The company incurs an ordering cost of 1,250 per order. The carrying cost for storing the specialized components is 25 per unit per annum. The company's annual production is 90,000 gadgets, and each gadget requires one component for its assembly. You are required to calculate: (i) Economic Order Quantity (ii) Number of orders to be placed in a year
Suggested Answer and Working Notes:
EOQ = √(2 x A x O / C) A = Units consumed during year = 90,000 components O = Ordering cost per order = 1,250 C = Inventory carrying cost per unit per annum = 25 EOQ = √(2 x 90,000 x 1,250 / 25) = 3,000 components No. of orders to be placed in a year Total consumption of materials per annum / EOQ = 90,000 / 3,000 = 30 orders per year
Topics: Material Cost
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