Economic order quantity (EOQ) is the ordering quantity level where ordering costs as well as carrying cost both are minimum. It aims to minimize the costs associated with the inventory. EOQ Calculator is an online aid for calculating such optimum ordering quantity to have optimum inventory carrying costs.
The formula for calculating Economic Order Quantity is the square root of two times the annual demand multiplied by ordering cost per unit and divided by carrying cost per unit. A mathematical representation of this formula is as follows:
EOQ = √(2AO/C)
Where,
A = Annual Demand
O = Ordering Cost
C = Carrying Cost
EOQ Calculator
How to Calculate using Calculator?
Economic order quantity (EOQ) calculator quickly provides the result once the user inserts the following figures into the calculator:
Annual Demand – It is the estimated annual demand for a product. It is assumed to be constant.
Ordering Cost – It includes all the costs attributable to an order. Such costs may be charges of supplying goods, charges related to payment processing, etc. Ordering cost increases with the increase in the number of orders.
Carrying Cost – Carrying cost means the cost of holding inventory that remains unsold. It includes all the costs associated with storing inventory, that is, the cost of goods that get damaged or lost, insurance, storage area costs, etc.
Also Read: Economic Order Quantity(EOQ)
The ordering cost and carrying cost move in opposite directions. Ordering cost increases with the increase in the number of orders, while carrying cost per unit decreases with an increase in the number of quantities left unsold.
