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ABC categories and EOQ of cement

Short answer

ABC classification: A items (few, high value) strict control, B moderate, C (many, low value) simple control. Carrying cost =15% of Rs 750 = Rs 112.5/bag/year. EOQ = sqrt(2*12000*10000/112.5) ≈ 1,461 bags.

Define A, B and C category of materials. Calculate Economic Order Quantity of Cement with following details; Total Quantity = 12000 bags; Ci = 15%, Co = 10000; P = 750 Rs. per bag.

A, B and C categories

Materials are classified by annual consumption value (quantity x rate):

  • A: few items (about 10-20%) forming about 70-80% of total value (cement, steel); strict control.
  • B: about 30% of items with about 15-20% of value (bricks, aggregate, tiles); moderate control.
  • C: many items (50-60%) but only 5-10% of value (nails, binding wire, small tools); simple control.

EOQ of cement

D=12000D = 12000 bags, Co=C_o = Rs 10,000, P=P = Rs 750/bag, Ci=15%C_i = 15\%, so carrying cost Ch=0.15×750=C_h = 0.15 \times 750 = Rs 112.5 per bag per year.

EOQ=2×12000×10000112.5=1460.6 bagsEOQ = \sqrt{\frac{2 \times 12000 \times 10000}{112.5}} = 1460.6\ \text{bags}

Orders per year = 12000/1460.6 = 8.2.

Answer: EOQ ≈\approx 1,461 bags.

✓ Answer checked by Claude Opus 5.5 (high effort)

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