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Dear Friend, **Meaning** Economic order quantity (EOQ) is the order quantity that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model, Wilson Formula or Andler Formula. EOQ applies only when demand for a product is constant over the year and each new order is delivered in full when inventory reaches zero. There is a fixed cost for each order placed, regardless of the number of units ordered. There is also a cost for each unit held in storage, commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of the item.
**ECONOMIC ORDER QUANTITY** Hi, EOQ is quantity of material which should be ordered or size of order which should be placed so that overall cost is minimum. Overall cost includes carrying cost and ordering cost. As order size increases number of orders to be placed gets reduced. so, annual ordering cost gets lowered. But due to increase in size of order,we have to incur extra carrying cost. So to maintain balance between ordering cost and carrying cost,order size should be such that it would lower the overall cost. Such order size is called EOQ. Thanks
Hii Uma Economic order quantity (EOQ) is the order quantity that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model, Wilson Formula or Andler Formula. EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory. EOQ is also referred to as the optimum lot size. The formula to calculate the economic order quantity is the square root of [(2 times the annual demand in units times the incremental cost to process an order) divided by (the incremental annual cost per unit to carry an item in inventory)].