Economic Order Quantity Calculator (EOQ)
Minimize total inventory carrying costs while preventing stockouts. The Economic Order Quantity (EOQ) formula calculates the optimal order batch size that balances fixed ordering fees against holding expenses, conserving warehouse capital and optimizing logistics.
Total units required or sold during a 12-month period
Fixed administrative, freight, and inspection costs per purchase order
Warehouse storage, insurance, shrinkage, and capital cost per unit
Optimal number of units to order each time to minimize total costs
How to Use This Calculator
- Enter total expected unit sales or production requirements over a 12-month period.
- Enter the fixed administrative and logistics expense incurred to place and receive each order.
- Specify the annual holding carrying cost per unit (typically 15% to 30% of unit product cost).
- Review the calculated optimal order batch size and recommended annual ordering frequency.
Formula & Calculation Methodology
Derives the mathematically optimal order quantity where annual ordering costs equal annual inventory holding costs.
Worked Example
10,000 units annual demand with $50 order cost and $4 annual holding cost per unit
Frequently Asked Questions
What costs make up the holding carrying cost in EOQ?↓
Holding costs include warehouse space rent, climate control utilities, security, material handling labor, insurance, tax assessments, damage/shrinkage allowances, and the cost of capital tied up in stock.
What happens if you order more or less than the EOQ?↓
Ordering less than the EOQ increases ordering frequency and total ordering administrative costs. Ordering more than the EOQ inflates warehouse holding costs and increases obsolescence risk.
Does basic EOQ account for supplier bulk quantity discounts?↓
Basic EOQ assumes constant unit price. If a supplier offers volume price discounts, total procurement costs must be compared between the EOQ batch and the supplier discount threshold.
What are the core limitations of the EOQ model?↓
EOQ assumes constant demand, instantaneous order fulfillment with zero lead time variance, and fixed holding costs, which can require adjustments in volatile real-world supply chains.
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Source Citation & Disclaimer
Informational tool only; not licensed tax, legal, or financial advice.