com/saphelp_apo31/helpdata/en/c3/9e443cfb06e532e10000000a114084/frameset. purchases tennis balls at $20 per dozen from its suppliers. These costs will be equal to one another at the minimized cost point.
Therefore, the small business owner should calculate EOQ using the formula (Q=square root of 2DS/H) to
determine if taking advantage of the quantity discount is worth it to order inventory again. The purpose of EOQ is to determine the perfect order quantity that a company should choose for inventory purchases, which will minimize inventory handling and ordering costs. The Economic Order Quantity helps in estimating that level article source inventory.
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The model supposes that the costs such as transportation expenses and warehouse rent either do not change or do not affect the ordering and handling costs, which is not entirely realistic. This order itself would bear ordering cost and inventory carrying cost. }
Economic order quantity =
2
D
K
h
{\displaystyle {\sqrt {\frac {2D\cdot K}{h}}}}
=
2
10000
40
4
+
50
2
=
2
10000
40
5
{\displaystyle ={\sqrt {\frac {2\cdot 10000\cdot 40}{4+50\cdot 2\%}}}={\sqrt {\frac {2\cdot 10000\cdot 40}{5}}}}
= 400 units
Number of orders per year (based on EOQ)
=
10000
400
=
25
{\displaystyle ={\frac {10000}{400}}=25}
Total cost
=
P
D
+
K
(
D
/
E
O
Q
)
+
h
(
E
O
Q
/
2
)
{\displaystyle =P\cdot D+K(D/EOQ)+h(EOQ/2)}
Total cost
=
50
10000
+
40
important site
browse this site (
10000
/
400
)
+
5
(
400
/
2
)
=
502000
{\displaystyle =50\cdot 10000+40\cdot (10000/400)+5\cdot (400/2)=502000}
If we check the total cost for any order quantity other than 400(=EOQ), we will see that the cost is higher. .