Economic Order Quantity Model

The economic order quantity is used in inventory management. It is the order quantity which will
minimise the ordering and holding costs. It is based on the following assumptions: -

 Demand is known with certainty and is constant over time

 No shortages are allowed

 Lead time for the receipt of orders is constant

 Order quantity is received all at once

Qopt = √2C0D/CC

Total Cost (TC) = C0D/Q + CCQ/2

Co-cost of placing order
D-annual demand
Cc-annual per-unit carrying cost

Q-order quantity

We have applied the EOQ Model for Breads in this case

The following data was obtained through the field visit: -

Q = 800 Cartons per Month

D = 96000 Cartons annually

Co = Rs. 300 per order

Cc = Rs. 40 per carton

Qopt = √2C0D/CC
= √2*300*9600/40
= 380 cartons

TC(min) = C0D/Q + CCQ/2

= 300*9600/380 + 40*380/2
= Rs. 15179