Economic Order Quantity

The video explained the concept of economic order quantity, otherwise known
as EOQ. It also discussed its formula.

Originally, this is a simple formula for total cost:

• total cost = purchase cost + ordering cost + carrying cost

However, the video gave the better formula to balance cost and find the optimal
order size which is the Economic Order Quantity formula:
• Q*=√2DR/H
where:
Q=Optimal order
R=Order cost
H=Carrying cost
D=Annual units demanded

To put it simply, the purpose of EOQ is to help you know precisely how much
inventory you want to buy to avoid a shortage, spoilage, and excessive costs.