E.O.Q. - U Economic Ordering Quantity Annual consumption (units) during the year Cost of placing an order Annual cost of storage of one unit. S p51 While deciding the question as to what should be the economic ordering quantity one has to ensure that the cost incurred should be minimum. An ideal order size, therefore, is at the quantity where the cost is minimum i.e., cost of holding the stock and ordering cost intersect each other. This is graphically shown hereunder: 3500 Ordering Cost Total Cost of Inventory 3000 2500 Management Annual Total Cost (Rs. Annual Carrying Cost (Rs.) Annual Ordering Cost (As.) 2000 1500 1000 500 Carrying Cost EO 0 X Order Quantity (Units) Illustration 2 ||| Ace Ltd. manufactures a product and the following particulars are collected for the year ended March, 2013: - Monthly demand (units) 250 Cost of placing an order (*) 100 Annual carrying cost per unit) 15 Normal usage (units per week) 50 Minimum usage (units per week) 25 Maximum usage (units per week) 75 Re-order period (weeks) 4-6 You are required to calculate: (1) Re-order quantity (1) Re-order level (iii) Minimum level (iv) Maximum level (v) Average stock level