WHAT IS EOQ MODEL:

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Economic Order Quantity

It is used in inventory management by calculating the number of units a company should
add to its inventory with each batch order to reduce the total costs of its inventory. The
costs of its inventory include holding and setup costs. The costs of its inventory
include holding and setup costs.

The Formula for Economic Order Quantity 

S: Setup costs (pre order, generally including shipping and handling) (Fixed
cost)

D: Demand rate (quantity sold per year)

H: Holding costs (Per year, per unit) (Variable Cost)

Q: Volume per order

C: Unit Cost (Variable cost)

I: Carrying Cost (Interest rate)

ORDERING COST

D/Q = Annual demand / Volume per order = Number of orders that

occur annualy.

For each order with a fixed cost that is independent of the number of units,
S, the annual ordering cost is found by multiplying the number of orders by
this fixed cost. It is expressed as:

(D/Q) * S = Annual ordering cost

HOLDING COST

Holding inventory often comes with its own costs. This cost can be in the
form of direct costs incurred by financing the storage of said inventory or
the opportunity cost of holding inventory instead of investing the money
elsewhere. As such, the holding cost per unit is often expressed as the cost
per unit multiplied by the interest rate, expressed as follows:

H = I*C

EOQ CON DESCUENTOS

Se asume que el costo de adquisición (C) disminuye en la medida que aumenta el tamaño de
lote. Adicionalmente se considera que el costo de almacenar una unidad en inventario es
un porcentaje (I) del costo de adquisición.

EOQ is a tool used to determine the volume and frequency of orders required to satisfy a
given level of demand while minimizing the cost per order.
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