Economic Order Quantity (EOQ) Destination , formula and Example


Economic Order Quantity (EOQ):

Learning Objective:

  1. Definite and explain economic order quantity (EOQ).
  2. How is economic order quantity (EOQ) calculated?
  1. Definition of EOQ
  2. economic order quantity Formula (EOQ formula)
  3. Example:

    Definition and Explanation:

    Economic order quantity (EOQ) is that size of the order which gives maximum economy in purchasing any material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost.

    In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost.

    The quantity to order at a given time must be determined by balancing two factors: (1) the cost of possessing or carrying materials and (2) the cost of acquiring or ordering materials. Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period of time.

    The carrying cost of inventory may include:

    • Interest on investment of working capital
    • Property tax and insurance
    • Storage cost, handling cost
    • Deterioration and shrinkage of stocks
    • Obsolescence of stocks.

      Formula of Economic Order Quantity (EOQ):

      The different formulas have been developed for the calculation of economic order quantity (EOQ). The following formula is usually used for the calculation of EOQ.

      Economic Order Quantity-EOQ-Formula

Other Related Accounting Articles:

    None Found

Recommended Books !



Or

Download E accounting book in MS-word format for just 20 $ - Click here to Download
Latest Comments
  1. javeed akhter April 13, 2014
  2. Johnc814 May 18, 2014
  3. may May 21, 2014
  4. Mohammad Amin August 25, 2014

Leave a Reply

Your email address will not be published. Required fields are marked *