Economic Order Quantity

EOQ =
√ 2SO
C
Where,
S - sales
O - Order Cost
Number of Order = S C - Carrying Cost
EOQ

Total Order Cost = Number of Order x O

Average Inventory = EOQ + Safety Stock

2

Total Carrying Cost = Average Inventory x C

Total Cost for EOQ = Total Order Cost + Total Carrying Cost
S (ANNUALLY) 300000
P 150
O 20% x 150 = 30
C 10% x 150 = 15
SS 400

EOQ =
√ 2SO
C

=
√ 2(300000)(30)
15

= 1095 units

Number of Order = S
EOQ

= 300000
1095

= 274 units

Total Order Cost = Number of Order x O

= 274 x 30
= RM8,220

Average Inventory = EOQ + Safety Stock

2

= 1095 + 400
2

= 948 units

Total Carrying Cost = Average Inventory x C

= 948 x 15
= RM14,220

Total Cost for EOQ = Total Order Cost + Total Carrying Cost
= RM8,220 + RM14,220
= RM22,440

Present Year
Sales 300,000
Average Price RM150
Ordering Cost (O) 20% x 150 = RM30
Holding Cost ( C ) 10% x 150 = RM15

Economic Order Quantity

EOQ =
√ 2SO
C

=
√ 2(300,000)(30)
15

= 1,095 units

Number of Order = S
EOQ

= 300,000
1,095

= 274 orders

Total Order Cost = Number of Order x O

= 274 x 30
= RM8,220

Average Inventory = EOQ + Safety Stock

2

= 1,095 + 400
2

= 948 units

Total Carrying Cost = Average Inventory x C

= 948 x RM15
= RM14,220

Total Cost = Total Order Cost + Total Carrying Cost

= 8,220 + 14,220
= RM22,440
arrying Cost
 Where,

S - sales
O - Order Cost
C - Carrying Cost

arrying Cost
Economic Order Quantity

EOQ = √ 2SO Where,

C S - sales
O - Order Cost
Number of Order = S C - Carrying Cost
EOQ

Total Order Cost = Number of Order x O

Average Inventory = EOQ + Safety Stock

2

Total Carrying Cost = Average Inventory x C

Total Cost = Total Order Cost + Total Carrying Cost

 First , extract information Secondly, calculate the
for the present year. changes for the next year.

This year Next Year

S 400000 400000 + 20% = 480000
P 50
O 50 x 10% = 5 5 + 10% = 5.5
C 50 x 15% = 7.50 7.5 + 10% = 8.25
SS 300 300

EOQ = √ 2SO
C

= 800 units

Number of Orders 600 orders

ying Cost
Total Order Cost RM3,300

Average Inventory 700 units

Total Carrying Cost RM5,775

Total Cost RM9,075

ANSWER:

EOQ = 807 units

Number of Orders = 465 orders

Total Order Cost = RM4,882.50

Average Inventory = 664 units

Total Carrying Cost = RM8,034

Total Cost for EOQ = RM12,917

ANSWER:

EOQ = 548 units

Number of Orders = 183 orders

Total Order Cost = RM219.00

Average Inventory = 374 units

Total Carrying Cost = RM299

Total Cost for EOQ = RM518

ANSWER:

EOQ = 1,131 units

Number of Orders = 340 orders

Total Order Cost = RM2,805.00

Average Inventory = 966 units

Total Carrying Cost = RM4,782

Total Cost for EOQ = RM7,587

ANSWER:

EOQ = 327 units

Number of Orders = 98 orders

Total Order Cost = RM882.00

Average Inventory = 314 units

Total Carrying Cost = RM1,696

Total Cost for EOQ = RM2,578