A firm consumes 90,000 units of a certain item of raw material in its production process annually. It costs Rs. 3 per unit, the cost per purchase order is Rs. 300 and the inventory carrying cost is 20% per year. What is the EOQ?

[amp_mcq option1=”9470 units” option2=”9487 units” option3=”9480 units” option4=”9840 units” correct=”option3″]

The economic order quantity (EOQ) is the optimal quantity of a product to order at a time in order to minimize the total inventory costs. It is calculated by taking into account the following factors:

• The annual demand for the product
• The cost of placing an order
• The cost of carrying inventory
• The cost of the product

The EOQ can be calculated using the following formula:

EOQ = √(2 * D * Cp / IC)

where:

• D = annual demand for the product
• Cp = cost of placing an order
• IC = inventory carrying cost

In this case, we are given the following information:

• D = 90,000 units
• Cp = Rs. 300
• IC = 20% per year

Substituting these values into the formula, we get:

EOQ = √(2 * 90,000 * 300 / 0.2) = 9470 units

Therefore, the EOQ for this product is 9470 units.

The other options are incorrect because they do not represent the EOQ for this product.