1. What is Economic Order Quantity (EOQ)?

The Economic Order Quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. It's a fundamental production scheduling model in inventory management.

2. How Does the Calculator Work?

The calculator uses the EOQ formula:

Where:

• \( D \) — Annual demand (units/year)
• \( S \) — Setup cost per order (USD)
• \( H \) — Holding cost per unit per year (USD/unit/year)

Explanation: The formula finds the quantity that minimizes the total cost of inventory management by balancing ordering costs and holding costs.

3. Importance of EOQ Calculation

Details: Calculating EOQ helps businesses optimize inventory levels, reduce storage and ordering costs, and improve cash flow by avoiding excessive inventory.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What are the assumptions of EOQ model?
A: Key assumptions include constant demand rate, fixed ordering cost, constant holding cost per unit, immediate delivery, and no quantity discounts.

Q2: How does EOQ relate to reorder point?
A: Reorder point is when inventory reaches a level where you need to place a new order (lead time demand + safety stock), while EOQ determines how much to order.

Q3: What are limitations of EOQ?
A: EOQ doesn't account for quantity discounts, demand variability, or lead time variability. More complex models address these limitations.

Q4: How often should I recalculate EOQ?
A: Recalculate when demand patterns change significantly, or when ordering or holding costs change by more than 10-15%.

Q5: Can EOQ be used for perishable goods?
A: Basic EOQ isn't ideal for perishables. Modified models that account for product deterioration rates are more appropriate.