GATE 2016 ME (ME1) – Question 64
The annual demand for an item is 10,000 units. The unit cost is Rs. 100 and inventory carrying charges are 14.4% of the unit cost per annum. The cost of one procurement is Rs. 2000. The time between two consecutive orders to meet the above demand is _______ month(s).
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Correct answer: 1.9 to 2.1
Explanation
Annual holding cost per unit is0.144·100=14.4. EOQ=sqrt(2DS/H)=sqrt(2·10000·2000/14.4)=1666.67units. Cycle time=Q/D=1/6year, or **2months**. This uses the deterministic EOQ assumptions of constant demand and instantaneous replenishment.