Overview
Economic order quantity (EOQ) is an operational metric used to determine the volume and frequency of orders a company should take on to satisfy a given level of demand while incurring the minimal cost per order. While the cost of ordering an inventory decreases with the increase in order volume due to economies of scale, the cost of holding the inventory rises with the size of inventory. EOQ is then determined to minimize the two inversely related costs. The EOQ formula comprises several components:
  • Annual Ordering Cost = Annual Quantity Demanded (D) / Volume per Order (Q) x Ordering Cost (S)
  • Annual Holding Cost = Volume per Order (Q) / 2 x Carrying Cost (i) x Holding Cost (H)
  • Annual Total Cost (TC) = Annual Ordering Cost + Annual Holding Cost - EOQ = dTC / dQ = √ (2SD/H)
Share
Reviews Add a review
No reviews yet

More From Corporate Finance Institute®

Browse our top rated business templates. See All
REIT Financial Model Template
79
0
This REIT financial model template acts as a guideline for modeling a real estate investment trust (REIT). This model will…
Energy Industry Comps Template Energy Industry Comps Template
964
58
This energy industry comps template provides a guideline and example of what a comparables universe would look like for a…
Financial Institution Dividend Discount Model
1,565
70
The financial institution dividend discount model uses future dividends to find the implied share price. This model is based on…
Loan Payment Calculator
1,251
0
The loan payment calculator allows users to determine the principal and interest payment each month until the full balance of…
DDM - Excel Dividend Discount Model Template
1,376
95
The dividend discount model template allows investors to value a company base on future dividend payments. This is based on…
Non-directional trading strategy template Non-directional Trading Strategies Template
1,171
0
The non-directional trading strategies template allow users to determine the profit when buying options. This template focuses on non-directional strategies…
See All