what is eoq? WHAT IS ITS FORMULA
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Answer / h.r. sreepada bhagi
Economic Order Quantity (EOQ) is an inventory management
model. It's the optimal qty. of orders for stock that
minimises total of ordering and holding cost of inventory.
Formula - √2CR/H,
C = Order Cost, R = Annual usage in units, H = Annual
inventory holding cost per unit.
For more information, refer any Cost Accounting Book.
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It is the optimum quantity of goods for which if orders are
placed, the aggregate order placing cost and the aggregate
inventory carrying cost.
The quantity per order (in units) that minimizes the total
costs of processing orders and holding inventory.
An inventory-related equation that 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. The full equation is as follows:
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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