Page 154 - FM Integrated WorkBook STUDENT 2018-19
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Chapter 8
Economic order quantity (EOQ)
2.1 The calculation
For businesses that do not use JIT inventory management systems there is an
optimum order quantity for inventory orders, the EOQ. The aim of the EOQ model is
to minimise the total cost of holding and ordering inventory.
The EOQ can be found using a formula
2CoD
EOQ= ඨ( )
Ch
Where:
C O = cost per order
D = annual demand
C H = cost of holding one unit for one year.
Annual holding costs = C H × EOQ/2
Annual ordering costs = C o × D/EOQ
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