cost accounting

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tinkesh kumar

tinkesh kumar (Querist)
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23 January 2011 define economic order quantity and how it is calculated

CA. Praveen Narayan

CA. Praveen Narayan (Expert)
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23 January 2011 Hi Dear..

EOQ determines the 'optimum order quantity' that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs.

Economic Order Quantity (EOQ)= Square root of (2SD/ PI)

where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)

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CA. Vipin Patni

CA. Vipin Patni (Expert)
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25 January 2011 EOQ is Economic Order Quantity which is the optimum quantity which should be ordered so as to minimise ordering cost and holding cost of the inventory.

EOQ = Square root of (2CO/UI)

C=annual consumption
O=ordering cost
UI=carrying cost per unit

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