How to Calculate Inventory E O Q
What is Inventory E O Q?
Calculates economic order quantity to minimize total inventory costs. Balances ordering costs against holding costs.
Formula
Formula: EOQ = √(2DS/H)
- EOQ
- √(2DS/H) — √(2DS/H)
- H
- H value — Variable used in the calculation
Step-by-Step Guide
- 1Annual demand (D)
- 2Cost to place order (S)
- 3Annual holding cost per unit (H)
- 4Formula: EOQ = √(2DS/H)
- 5Result shows optimal order quantity
Worked Examples
Input
$5k order, $50 item
Result
100 units
Common Mistakes to Avoid
- ✕Not including all holding costs (storage, insurance, obsolescence)
- ✕Using average cost instead of per-unit cost
Frequently Asked Questions
What's the benefit of EOQ?
Minimizes total inventory costs by finding optimal balance between order and holding costs.
How often should I order at EOQ?
Frequency = annual demand ÷ EOQ; typically 5-12 times annually for most products.
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