ECONOMICS

Detailed explanation-1: -Economic order quantity (EOQ) is the ideal quantity of units a company should purchase to meet demand while minimizing inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has been refined over time.

Detailed explanation-2: -Example of Economic Order Quantity The shop sells 1, 000 shirts each year. It costs the company $5 per year to hold a single shirt in inventory, and the fixed cost to place an order is $2. The EOQ formula is the square root of (2 x 1, 000 shirts x $2 order cost) / ($5 holding cost), or 28.3 with rounding.

Detailed explanation-3: -Optimal order quantity is the most cost-effective amount of inventory that a business should have at any given time. Put simply, this calculation represents your ideal order size to meet demand without tying up too much working capital in excess stock.

Detailed explanation-4: -Economic Order Quantity (EOQ), also known as Economic Buying Quantity (EPQ), is the order quantity that minimizes the total holding costs and ordering costs in inventory management.

Detailed explanation-5: -To calculate the economic order quantity, you will need the following variables: demand rate, setup costs, and holding costs. The formula is: EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.