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Cost Accounting and
Cost Management in a
Lean Environment
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Economic Order
Quantity (EOQ)
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Economic Order ▪
Quantity (EOQ)
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Major costs Carrying costs Ordering costs

(purchased from
outside suppliers)
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Major costs Carrying costs Set-up costs

(internally produced)
Solving
for EOQ
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Formulas

No. of orders = ÷ EOQ

Frequency of ordering = 360 days ÷ No. of orders

Total ordering cost = No. of orders per year X cost per order

Total carrying cost = Average Inventory (EOQ/2) X Carrying cost per unit
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Problem Solving
Annual units required 4,800

Ordering costs P 30/ order

Carrying costs per unit P 1.25

480
10
36 days
P300
P300
P600
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Problem Solving
Annual units required 4,800

Ordering costs P 30/ order

Carrying costs per unit P 1.25

480
10
36 days
P300
P300
P600
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Reorder Point
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Reorder Point ▪

Lead Time ▪
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Formulas

Reorder Point =

Reorder Point =
Solving for
Reorder Point
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Problem Solving
Lead time 15 days

Daily requirement 13.33

200
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Problem Solving
Maximum daily usage 50 units

Average daily usage 40 units

Lead time 18 days

180

900
Backflush
Accounting
Any questions?