IGNOU AOR 1 2026 - A manufacturing company needs 2500 units of a particul

Question

A manufacturing company needs 2500 units of a particular item every year. The company buys it at the rate of ₹ 30 per unit. The order processing cost for this item is estimated at ₹ 15 and the cost of carrying a item in stock comes to about ₹ 4 per year. The company can manufacture this item internally. In that case it saves 20% of the price of the product. However, it estimates a set-up cost of ₹ 250 per production run. The annual production rate would be 4800 units. However, the inventory holding costs remain unchanged.

09 Jan 2026

Answer :

Word Count : 502

First, let's solve this step by step manually. This is a classical Economic Order Quantity (EOQ) / Production Inventory problem where we compare buying vs. manufacturing. --- Given data: * Annual demand: (D = 2500) units * Purchase cost: (C = ₹30) per unit * Ordering cost: (S = ₹15) per order * Holding cost: (H = ₹4) per unit per year If manufactured internally: * Cost saving: 20% of ₹30 → manufacturing cost per unit: (C_m = 30 \times 0.8 = ₹24) * Set-up cost: (S_m = ₹250) per production run * Production rate: (P = 4800) units/year * Holding cost: (H = ₹4) per unit per year --- ### Step 1: EOQ if purchased The EOQ formula for

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