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Economic Order Quantity (EOQ) model

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The Economic Order Quantity (EOQ) model is helpful in determining accurate inventory decisions. Discuss the major inventory costs that are used in determining the EOQ. Propose an example from your own experience or what you could imagine where EOQ could be used to improve inventory decisions.

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Solution Summary

This solution shows a step-by-step procedure for calculating EOQ. I also explain the major inventory costs that are used in determining EOQ, and proposes an example where EOQ can be used to improve inventory decisions. Includes 1 reference.

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The EOQ is calculated as follows:

It is the square root of:
2 x annual demand x cost per order / the holding or carrying cost per unit

Let's use actual numbers:

2 x 50,000 widgets demanded per year x $6.00 to order / ...

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