Consider the following data for an item. Annual demand:

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Consider the following data for an item. Annual demand: 2500 units per year Ordering cost: Rs. 100 per order, Inventory holding rate: 25% of unit price
Price quoted by a supplier

The optimum order quantity (in units) is

1. 447
2. 471
3. 500
4. ≥600

Correct Option: C

D = 2500 units/years
C_o = Rs. 100/order
C_h = (0.25) Unit + Price

Q* &rArrr; 447.2 ±
TAC (O*) = D × C + √2DC_oC_h
⇒ 2500 × 10 + √2 × 2500 × 10 × 2.5

⇒ 2500 × 9 +	2500	× 100
	500

=	500	(23.25 × 9)
	2

⇒ 23562.5
Since Total cost minimum at Q = 500 units
∴ the optimal order quality is Q = 500 units