Answer to Question #86119 in Financial Math for Anand

Question

A grocery shop sells milk packets (containing 1/ 2 a litre of milk) as well. It makes
bulk purchase of the same from the nearby city. Every time a purchase is made, it
incurs a cost of ` 50 towards transportation. The daily demand of packets is about
250. Holding cost is ` 0.10 for a packet a day to preserve it in a refrigerator.
Determine the optimum quantity of a bulk purchase and the cycle time.

Answer 1

Calculate the economic order quantity (EOQ), also known as Wilson Formula:

$Q=\sqrt{\smash[b]{(2*50*250)/(0.1*250)}}=31.62$

where

Q - optimal order size,pcs

50 - the cost of a single order, r

250 - the need for inventory items for a certain period of time (year), units

(0.1*250) - the cost of maintaining a unit of inventory, r/pcs