This document discusses the economic order quantity (EOQ) model, which is used to determine the optimal order quantity that minimizes total inventory costs. The EOQ formula considers annual consumption, ordering costs, unit costs, and storage carrying costs. In the example provided, the document calculates the EOQ and number of orders per year for a product with monthly consumption of 3,000 units, a unit cost of Rs. 54, an ordering cost of Rs. 150, and a 20% inventory carrying cost. It determines the EOQ is 1,000 units and there will be 36 orders per year.

1. ECONOMIC ORDER QUANTITY

2. Meaning of ECQ
The Economic Order Quantity (ECQ) is the
number of units that a company should add to
inventory with each order to minimize the
total costs of inventory-such as holding costs,
order costs, and shortage costs.
The ECQ model finds the quantity that
minimizes the sum of these costs.

3. FORMULA
1. ECQ = √2AB ∕ CS
 A = Annual consumption or usage of
materials in units
 B = Buying cost per order / ordering cost
 C = Cost per units
 S = Storage and carrying cost percentage
per annum

4. PROBLEM
Find out the economic order quantity and the
number of orders per year from the following
information:
Monthly consumption 3,000 units
Cost per units Rs.54
Ordering cost Rs.150 per order
Inventory carrying cost 20% of the
average inventory.

5. SOLUTION
• ECQ = √2AB/CS
Number of order per year
A = Annual consumption
B = Buying cost per order
C = Cost per units
S = Storage and carrying cost percentage per
annum

6. Annual Usage / Consumption = 3000×12
= 3600
Number of order per year = 3600/1000
= 36
ECQ = √2(3600×150)/54×20/100
= √10800000/10.8
= √1000000
= 1000

7. Frequency of Order = Days or month in the year/
No . of order per annum
= 365/36
= 10 Days
(or)
= 12/36
= 1/3 month
An order is to be place once in 10 days are 1/3 of the
month for 1000 units each time.

8. THANKINGYOU
DONEBY
ELAMTHIC.V
NITHYASHRI.M