There were products P and Q with the following characteristics The economic order quantity (EOQ) of products P and Q will be in the ratio Product Demand
(units) Order cost
(Rs./order) Holding cost
(Rs. unit/year)P 100 50 4 Q 400 50 1
1 : 4
Calculating the Economic Order Quantity (EOQ) Ratio for Products P and Q
The Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimizes the total inventory costs, which include ordering costs and holding costs.
The formula for EOQ is given by:
Where:
- D is the annual demand for the product.
- S is the ordering cost per order.
- H is the holding cost per unit per year.
We are given the following characteristics for products P and Q:
| Characteristic | Product P | Product Q |
|---|---|---|
| Demand (D) | 100 units/year | 400 units/year |
| Order cost (S) | Rs. 50/order | Rs. 50/order |
| Holding cost (H) | Rs. 4/unit/year | Rs. 1/unit/year |
Let's calculate the EOQ for each product.
Economic Order Quantity for Product P
Using the EOQ formula for Product P:
Economic Order Quantity for Product Q
Using the EOQ formula for Product Q:
Ratio of EOQ of Products P and Q
Now we find the ratio of the EOQ of Product P to the EOQ of Product Q:
Simplifying the ratio:
Thus, the ratio of the Economic Order Quantity of products P and Q is 1 : 4.
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