Accounting Economic Order Quantity Calculator
Calculate the order quantity that can help minimize annual inventory ordering and holding costs.
Overview
This Accounting Economic Order Quantity Calculator estimates the order size that balances the cost of placing orders with the cost of holding stock. Enter your annual demand, cost per order, annual holding cost per unit, and unit purchase cost to review the suggested order quantity and related yearly costs.
How it works
Economic order quantity, or EOQ, uses the square root of twice annual demand multiplied by ordering cost, divided by annual holding cost per unit. At this order quantity, estimated annual ordering cost and annual holding cost are equal. The calculator also estimates average inventory, the number of orders per year, and total annual inventory cost including purchases.
How to use this calculator
- 1Enter the number of units you expect to use or sell in a year.
- 2Add the full cost of processing and receiving one order.
- 3Enter the annual cost of holding one unit in inventory.
- 4Add the unit purchase or production cost.
- 5Review the suggested order size, order frequency, and annual inventory costs.
Example Calculation
Annual demand
10000
Cost per order
$50
Annual holding cost per unit
$2
Unit purchase cost
$20
Economic order quantity
707 units
For annual demand of 10,000 units, a $50 cost per order, and a $2 annual holding cost per unit, the EOQ is about 707 units. This requires about 14.1 orders per year and produces estimated annual ordering and holding costs of about $1,414.
Frequently asked questions
What is economic order quantity?
Economic order quantity is an inventory model that estimates how many units to order at once to minimize the combined cost of ordering and holding stock.
What costs should be included in the cost per order?
Include costs that occur each time an order is placed, such as purchasing administration, receiving, inspection, invoice processing, and delivery charges that vary by order.
What is included in annual holding cost per unit?
Holding cost can include storage, insurance, handling, deterioration, obsolescence, and the cost of capital tied up in inventory.
Why are annual ordering and holding costs equal at EOQ?
The EOQ formula finds the balance point where the estimated annual cost of ordering inventory equals the estimated annual cost of carrying it.
Does EOQ account for supplier quantity discounts?
No. The standard EOQ model assumes the unit price does not change with order size. Compare discounted prices and carrying costs separately if quantity discounts apply.
Can EOQ be used when demand changes during the year?
It can provide a starting estimate, but it is less precise when demand is seasonal or highly variable. Review demand forecasts and safety-stock needs alongside the result.
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Assumptions and warnings
Assumptions
- Demand is steady and known throughout the year.
- Each order is received in full when needed, with no stockouts or delivery delays.
- The cost per order and annual holding cost per unit remain constant.
- Quantity discounts, changing supplier prices, taxes, and financing arrangements are excluded from the EOQ calculation.
- Results are estimates based on the values entered.
Warnings
- This calculator provides an inventory planning estimate only and is not accounting, financial, or business advice.
- Review supplier lead times, minimum order quantities, storage limits, and demand variability before changing purchasing policies.