gen-define-the-economic-order-quantity-and-give-one-short-worked-73ef

Define the economic order quantity and give one short worked example.

# Economic Order Quantity (EOQ) ## Definition Economic Order Quantity is the optimal order quantity that minimizes the total inventory costs, including ordering costs and holding (carrying) costs. It answers the question: "How much should I order at one time to minimize total costs?" ## Formula ``` EOQ = √(2DS/H) ``` Where: - D = Annual demand (units) - S = Ordering cost per order - H = Holding cost per unit per year --- ## Worked Example **Given:** - Annual demand (D) = 10,000 units - Ordering cost (S) = $50 per order - Holding cost (H) = $2 per unit per year **Solution:** EOQ = √(2 × 10,000 × 50 / 2) EOQ = √(1,000,000 / 2) EOQ = √500,000 **EOQ = 707 units** **Interpretation:** The company should order 707 units each time to minimize total inventory costs. This would result in approximately 14 orders per year (10,000 ÷ 707).