What does EOQ assume?

Steady, known demand, a fixed cost per order, a constant holding cost and no quantity discounts.

Does EOQ include safety stock?

No. Safety stock is a separate buffer added to the reorder point.

Must the units match?

Yes. Demand and holding cost must cover the same period, usually one year.

How to calculate economic order quantity (EOQ)

EOQ is the square root of two times annual demand times cost per order, divided by holding cost per unit per year. It balances ordering cost against holding cost.

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The formula

EOQ = √(2 × D × S ÷ H), where D is annual demand, S is cost per order and H is holding cost per unit per year.

Step by step

Estimate annual demand in units.
Work out the cost of placing one order.
Work out the cost of holding one unit for a year.
Put the figures into the formula.

Worked example

Demand 12,000 units, 50 per order, holding 3 per unit-year

2 × 12,000 × 50 = 1,200,000
1,200,000 ÷ 3 = 400,000
√400,000 = 632.46

The economic order quantity is about 632 units.

Common questions

Calculators for this

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APA

Free Calculator. (n.d.). How to calculate economic order quantity (EOQ). https://freecalculator.tech/guides/how-to-calculate-eoq

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"How to calculate economic order quantity (EOQ)." Free Calculator, https://freecalculator.tech/guides/how-to-calculate-eoq.

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