Page 61 - DBP5043

INVENTORY

Economic order quantity is the level of inventory that

minimizes the total inventory holding / carrying costs and
ordering costs.

ECONOMIC ORDER QUANTITY MODEL (EOQ)

Used to determine the minimum inventory cost. This is done
through determining the total quantity of each order made to

ensure that the total cost incurred is minimal.

EOQ = √ 2 X O X D @ S

C

EXAMPLE:

A company would like to know the amount should be ordered to
minimize the inventory cost. Sales made for one year is 12,000
units. The percentage of carrying costs is 30% of the purchase
value. The purchase price is RM12.00 per unit and the ordering

cost is RM130 per order.

Calculate:

a) EOQ

b) Number of orders

c) TIC

d) TIC if the safety stock required is 1,500 units.