Annual quantity of school bags sold by a shop is 50,000 per annum. Cost of placing an order and receiving the consignment is Rs. 1,000 per order. Inventory holding cost is Rs. 100 per annum. What is the EOQ for the shop keeper?

1000 bags

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 = 50,000; P = 1000 per order and C = 100
So 2 x P x D = 2*50,000*1,000 =10,00,00,000
 10,00,00,000 divided by 100 = 10,00,000
Square root of 10,00,000 is = 1000
So the EOQ is 1000 bags.