EOQ formula ? and tell me about that???
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Answer Posted / shailaja polmuri
The basic Economic Order Quantity (EOQ) formula is as
follows:
EOQ = Root of 2(annual usage in units) (Order cost)/annual
carrying cost per unit)
Annual usage: Expressed in units, this is generally the
easiest part of the equation. You simply input your
forecasted annual usage.
Order Cost: Also known as purchase cost or set up cost,
this is the sum of the fixed costs that are incurred each
time an item is ordered. These costs are not associated
with the quantity ordered but primarily with physical
activities required to process the order.
Carrying cost:
Also called Holding cost, carrying cost is the cost
associated with having inventory on hand.It is primarily
made up of the costs associated with the inventory
investment and storage cost. For the purpose of the EOQ
calculation, if the cost does not change based upon the
quantity of inventory on hand it should not be included in
carrying cost. In the EOQ formula, carrying cost is
represented as the annual cost per average on hand
inventory unit. Below are the primary components of
carrying cost.
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