1. What is the EOQ Formula?

The Economic Order Quantity (EOQ) formula calculates the optimal order quantity that minimizes total inventory costs, including ordering and holding costs. It's a fundamental tool in inventory management.

2. How Does the Calculator Work?

The calculator uses the EOQ equation:

Where:

• \( Demand \) — Annual demand in units
• \( Setup\ Cost \) — Cost per order placed
• \( Holding\ Cost \) — Annual holding cost per unit

Explanation: The formula finds the quantity where ordering costs and holding costs are balanced, minimizing total inventory costs.

3. Importance of EOQ Calculation

Details: EOQ helps businesses determine the most cost-effective quantity to order, reducing excess inventory while avoiding stockouts and excessive ordering costs.

4. Using the Calculator

Tips: Enter annual demand in units, setup cost per order in dollars, and annual holding cost per unit in dollars. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What assumptions does EOQ make?
A: EOQ assumes constant demand, fixed ordering costs, constant holding costs, immediate delivery, and no quantity discounts.

Q2: How does EOQ relate to reorder point?
A: EOQ determines how much to order, while reorder point determines when to order based on lead time demand.

Q3: What if demand is not constant?
A: For variable demand, more advanced models like periodic review systems may be more appropriate.

Q4: How does EOQ change with quantity discounts?
A: With quantity discounts, you may need to compare total costs at different price breaks to find the optimal order quantity.

Q5: What are limitations of EOQ?
A: EOQ doesn't account for stockouts, perishability, or demand variability. It works best for stable, predictable demand patterns.