Annual qty of jeans sold by a shop is 1,200 at the rate of Rs 100/- per month. Cost of placing an order and receiving goods is Rs 500/- per order. Inventory holding cost is Rs 30/- per annum. What is the economic order quantity for the shop keeper?

200

Formula for calculating EOQ (Q) =\(\sqrt\frac{2PD}{C} \)   where

D= Annual Demand for the item (SKU)
P: Cost of placing and receiving one Order (does not include purchase price)
C: Inventory carrying cost per unit. This may be derived by multiplying the unit price of the item by the carrying cost expressed as %age of the unit price.
S: Safety Stock level for the item.

Here, D = 1,200; P = 500 and C = 30.

So 2 x P x D = 12,00,000

This divided by 30 = 40,000.
Square root of which is = 200
So the EOQ is 200 jeans.