For an annual demand of 1,200 units, ordering cost of $50 and holding cost of $2/unit/year, the Economic Order Quantity is 244.9 units — about 4.9 orders per year.
EOQ = √(2DS/H) = √(2 × 1,200 × 50 / 2) = √60,000 ≈ 244.9 units
| Metric | Value |
|---|---|
| EOQ | 244.9 units |
| Orders per year | 4.9 |
| Annual holding cost | $244.95 |
| Annual ordering cost | $244.95 |
| Total annual cost | $489.90 |
At the EOQ, holding cost equals ordering cost — the classic optimization balance point.
EOQ is the order quantity that minimizes total inventory costs. Example: EOQ = √(2×1200×50/2) ≈ 245 units.
Use the formula EOQ = √(2DS/H) where D = annual demand, S = ordering cost per order, H = holding cost per unit per year.