ECONOMICS

Detailed explanation-1: -Economic Order Quantity The total cost of inventory is the sum of the purchase, ordering and holding costs. As a formula: TC = PC + OC + HC, where TC is the Total Cost; PC is Purchase Cost; OC is Ordering Cost; and HC is Holding Cost.

Detailed explanation-2: -It is calculated as the sum total of storage cost, finance cost, insurance, and taxes as well as obsolescence and shrinkage cost. read more at economic order quantity. The below table shows the calculation of the number of orders per year. A number of orders per year = Annual quantity demanded/ EOQ.

Detailed explanation-3: -The number of orders in a year = Expected annual demand/EOQ. Total annual holding cost = Average inventory (EOQ/2) x holding cost per unit of inventory.

Detailed explanation-4: -To calculate the EOQ for inventory you must know the setup costs, demand rate, and holding costs. Setup costs refer to all of the costs associated with actually ordering the inventory, such as the costs of packaging, delivery, shipping, and handling.