Publish On: 2019-04-23

Andy More

Total Post: 752

Question: Define economic order quantity

Reply On: 2013-07-08


Total Post: 8

ANS: Define economic order quantity

For a large order quantity, Q, the carrying cost will increase, but the ordering costs will decrease. On the other hand, the carrying costs will be lower and ordering cost will be higher with the lower order quantity. Thus, the total cost function represents a trade-off between the carrying costs and ordering costs for determining the EOQ.

To obtain the formula for EOQ, equation is differentiated with respect to Q and setting the derivative equal to zero, we obtain:

Economic order quantity = √2x quantity required x ordering cost / carrying cost

EOQ = √2AO/c

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