The demand for an item is deterministic and constant over a time and it is equal to 600 units per year. The unit per cost of the item is Rs. 50 while the cost of placing an order is Rs. 5. The inventory carrying cost is 20% of the cost of inventory per annum and the cost of shortage is Re. 1 per unit per month. Find the optimal ordering quantity when stock outs are permitted. If the stock outs are not permitted, what would be the loss to the company?
To find the optimal ordering quantity when stockouts are permitted, we can use the Economic Order Quantity (EOQ) model. The EOQ formula is given by:
EOQ = √((2DS)/H)
Where:
D = Demand per year
S = Ordering cost per order
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