“From the following information, calculate the extra cost of material by following EOQ: Annual consumption = 45000 units Ordering cost per order = Rs 10 Carrying cost per unit per annum = Rs 10 Purchase price per unit = Rs 50 Re-order quantity at present = 45000 units There is discount of 10% per unit in case of purchase of 45000 units in bulk”

The correct answer is: D. Rs. 2,990

The economic order quantity (EOQ) is the optimal quantity of an item to order at a time in order to minimize the total inventory costs. The EOQ is calculated as follows:

$$EOQ = \sqrt{\frac{2DC}{h}}$$

where:

• $D$ is the annual demand for the item,
• $C$ is the ordering cost per order,
• $h$ is the carrying cost per unit per annum.

In this case, we are given the following information:

• $D = 45000$ units
• $C = 10$ rupees
• $h = 10$ rupees

Substituting these values into the EOQ formula, we get:

$$EOQ = \sqrt{\frac{2 \times 45000 \times 10}{10}} = 3000$$

The current re-order quantity is 45000 units, which is greater than the EOQ. This means that the company is ordering more units than necessary, which is leading to higher inventory costs.

The extra cost of material by following EOQ can be calculated as follows:

$$Extra \ cost = \frac{(Q – EOQ)C}{2}$$

where:

• $Q$ is the current re-order quantity
• $EOQ$ is the economic order quantity
• $C$ is the ordering cost per order

In this case, we have:

• $Q = 45000$ units
• $EOQ = 3000$ units
• $C = 10$ rupees

Substituting these values into the formula, we get:

$$Extra \ cost = \frac{(45000 – 3000) \times 10}{2} = 2990$$

Therefore, the extra cost of material by following EOQ is Rs. 2,990.