Formulas for Inventory

1) EOQ = Square root of: (2AO/C)

2) Ordering Cost : Annual Demand / EOQ

3) Carrying cost : (EOQ/2) × Carrying cost per unit

4) Total Inventory Cost : Purchase Cost + Ordering Cost + Carrying Cost

5) Minimum Stock Level : Re-order level – (Average lead time × Average

consumption)

6) Re-order Level : (Normal Usage ×Average Delivery Time) +

Minimum Stock Level
OR

Maximum Re-order period × Maximum consumption

OR
Safety Stock + Lead Time Consumption

7) Maximum Stock Level : Re-order level + Re-order quantity –

(Minimum consumption × Minimum re-order period)

8) Average Stock Level :

(Maximum Stock Level + Minimum Stock Level )/2
OR
Minimum Stock Level + ((Re-order Quantity)/2)

9) Safety Stock : (Annual Demand/365 ) × (Maximum lead time –

Average lead time) (Usage at Normal rate during extention of lead
time)

10) Buffer Stock : Average lead time × Average consumption

11)Reserve Stock : Average lead time × (Maximum Usage – Normal Usage) ( To

meet excess usage during normal lead time)

12)Danger Level : Minimum Consumption × Emergency Delivery Time

13)Inventory Turnover Ratio : (Material Consumed/Average Inventory)

14)Inventory Turnover Period :( 365 / Inventory Turnover Ratio)

Compiled :
Samkit Dhruva