Economic order quantity 400 units Number of orders per year based on EOQ 10000 400 25 displaystyle frac 1000040025 Total cost P D K D E O Q h E O Q 2 displaystyle Pcdot DKDEOQhEOQ2. S Setup costs per order generally including shipping and handling D Demand rate quantity sold per year beginaligned EOQ sqrtfrac2times Stimes D. So to minimize the total cost differentiate Total Cost TC wrt.
For a company X annual ordering costs are 10000 and annual quantity demanded is 2000 and holding cost is 5000.
Total carrying costs equal the product of carrying cost per unit C and average inventory balance. 41 if total quantity is OB ie Q then average inventoryQ2 Putting expressions of 2 ad 3 in 1 The objective is to determine the quantity to order which minimizes the total annual inventory cost. Dont try this at home. Annual Demand D.