EOQ with Quantity Discounts


  D:  

Demand per year


S:  

Cost of placing an order, per order


I:  

Annual Inventory Holding Cost: as percentage of item cost


C:  

Per Unit Cost of Item


    

EOQ With Quantity Discount Solution


EOQ =  

 

 

EOQ with Quantity Discount Formula

The economic order quantity formula is:

EOQ = √ (2DS) / (IC)

where,

D is the Demand of the product per unit of time

S is the cost of placing the order

I represents annual inventory holding cost as percent of item total cost

C is unit cost of the item

**Note that D and H must be for the same period of time (i.e. months, years, etc).


What is Economic Order Quantity with Quantity Discounts

 

When considering quantity discounts to determine the EOQ, it is essentially the same formula, but rather than H (holding cost) you evaluate the cost of the item (C) and multiply it by the inventory holding cost of the item as a percent of the cost on an annual basis.


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