Annual usage is 6000 units @ Rs 20 per unit Cost of placing an order is Rs 60 and annual carrying cost of one unit is 10% of inventory value EOQ = __________.

Answer: Option A

What is EOQ?
Imagine you run a shop. You need to order goods for your customers. If you order too much at once, you have to pay a lot to store them (this is called carrying cost). If you order too little, you have to order very often, and each time you place an order, it costs money (this is called ordering cost).
EOQ helps you find the 'just right' quantity to order each time to keep your total costs (ordering + carrying) as low as possible. It's like finding the perfect balance to save money!
The Formula for EOQ:
The formula to calculate EOQ is:
EOQ = Square Root of [(2 * D * O) / C]
Let's break down what each letter means:
* D = Annual Demand (or Usage) in units. This is how many units you need in a whole year.
* O = Ordering Cost per Order. This is the cost you incur every single time you place an order (e.g., administrative costs, paperwork, delivery arrangement costs).
* C = Annual Carrying Cost per Unit. This is the cost of holding one unit in your storage for a whole year (e.g., storage rent, insurance, costs due to damage, or the money tied up in inventory).
Let's find these values from our question:
1. Annual Usage (D): The question states "Annual usage is 6000 units".
So, D = 6000 units.
2. Ordering Cost per Order (O): The question states "Cost of placing an order is Rs 60".
So, O = Rs 60.
3. Annual Carrying Cost per Unit (C): This one needs a small calculation.
The question says "annual carrying cost of one unit is 10% of inventory value".
The inventory value (cost) per unit is Rs 20.
So, to find C, we calculate 10% of Rs 20:
C = 10% of Rs 20
C = 0.10 * 20 = Rs 2 per unit.
Now, let's put these values into the EOQ formula:
EOQ = Square Root of [(2 * D * O) / C]
EOQ = Square Root of [(2 * 6000 * 60) / 2]
Let's calculate step-by-step:
First, calculate the top part (numerator):
2 * 6000 * 60 = 12000 * 60 = 720,000
Next, divide by the bottom part (denominator):
720,000 / 2 = 360,000
Finally, find the square root of 360,000:
EOQ = Square Root of 360,000
EOQ = 600 units
So, the Economic Order Quantity (EOQ) is 600 units. This means ordering 600 units each time will be the most cost-effective way to manage inventory for this company.
Looking at the options:
Option A: 600 units
Option B: 750 units
Option C: 1200 units
Option D: 1250 units
Our calculated answer matches Option A.