Economic order quantity (EOQ)

EOQ

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2. Presentation by m.nivetha

3. Economic order quantity

4. Definition of eoq “ EOQ is essentially an accounting formula that determines at which the combination of order costs and inventory carrying cost are the least The result is the most cost effective quality to order In purchasing this known as order quantity in manufacturing it is known as the production lot size.

5. Economic order quantity

6. EOQ = √2AB / CS = √ 2UO/C = √ 2CO/I Economic order quantity

7. ECONOMIC ORDER QUANTITY EOQ =√2AB / CS A =Annual consumption (or) usage of material in units B =Buying cost per order C =Cost per unit S =Storage and carrying cost percentage per annum

8. EOQ =√2UO / C U =Usage in units per annum O =Ordering cost C =Cost of carrying one unit in inventory during one year

9. Eoq =√2co / i C =Consumption of a material in units per year O =Ordering cost I =Interest and other carrying cost per unit per annum

10. Example Economic order quantity and the number of order per year. Monthly consumption 3,000 units Cost per unit Rs.54 Ordering cost Rs.150 per order Inventory carrying cost 20% of the average inventory. EOQ = √2AB/CS A=Annual consumption 3,000 B=Buying cost per unit Rs.150 per order C=Cost per unit Rs.54 S=Storage and carrying cost 20% Annual consumption =3,000 × 12 =36,000 = √2 × 36,000 × 150/ 54 × 20/ 100 =√10800000 / 10.8 =√10,00,000 =1000 Number of order per year =36000 / 1000 =36 Frequency of orders =Days or month on the year / No, of order per annum =365 / 36 =10days (or) 12 / 36 =1 / 3 Month CONCLUSION : An order is to be placed once in 10days or 1/3 of a month for 1000 units each time.

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