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Posts Tagged ‘Economic Order Quantity’

Calculating Economic Order Quantity or EOQ is easy with the Economic Order Quantity formula. Below is an Economic Order Quantity calculation you can use as an example in learning how to calculate the Economic Order Quantity.

Example of Economic Order Quantity calculation

Whenever you have to calculate the Economic Order Quantity, remember the Economic Order Quantity formula:

Where:

• C = cost of carrying a unit of stock for one year
• O = cost of placing an order for stock
• D = annual demand in units

Suppose you are calculating the Economic Order Quantity of computers for a ma and pa store. If each year, 10,000 units are demanded and the cost of replacing an order is $5000 whereas the cost of carrying is $50 per unit, then:

The cost of carrying for 10,000 units is $500,000 and the Economic Order Quantity is:

Deriving Economic Order Quantity Formula

The Economic Order Quantity calculation below derives the formula for Economic Order Quantity. Simple calculus is used. First, we rewrite T in the form that is easily differentiable.

At minimum value, dt/dQ is zero therefore:

Remember Q is Economic Order Quantity and we have arrived at the Economic Order Quantity formula.