PRESENTED BY

BHAVISHYA GUPTA
SECTION “A”
ROLL No.-M08032
◦ The Economic Order Quantity Model.
◦ The Quantity Discount Model.
◦ The Economic Manufacturing Quantity
Model.
◦ The Statistical Reorder Point.
The economic order quantity (EOQ) is
that size or order at which the total cost
of ordering and holding are minimum.
Annual Cost

Total Cost Curve

Holding Cost
Ordering Cost

Economic Order Order Quantity

Quantity (Q0)
 Annual Requirement(R).
 Ordering Cost (Cp).
 Holding or Carrying Cost(Ch).
 Qo = 2.R.Cp
Ch

R = Annual Requirement(in units).

Cp= Cost Of Placing an order.
Ch= Cost of holding a unit for an year
 TIC is the sum total of Material purchase cost,
ordering cost, and holding cost.

Material Ordering Holding

TIC
TIC Cost. Cost(Cp) Cost(Ch)
 Consumption of materials per annum= 10,000Kgs.
 Order Placing Cost Per Order = Rs. 25
 Cost per Kg. of raw material = Rs. 2
 Storage costs = 4% on
average inventory
 Sometimes the suppliers offers different
discounts on orders of large quantity.

 With quantity discount, the firm will save on

the per unit purchase price. However, the
firm will have to increase the order size more
than the E.O.Q. level to avail the quantity
discount.
 Thus, in addition to discount savings, the firm
will save on ordering costs but will incur
additional carrying costs.
 In such a situation, at first we have to
calculate EOQ and find out its TIC without
considering the discount offers.
 Then we should calculate TIC of each
alternatives offer . That quantity will be EOQ
at which TIC is the lowest.
For order of 1,000 units 5%
For order of 2,000 units 8%
What quantity should the company order?
BHAVISHYA GUPTA
SECTION- (A)
ROLL No.-M08032