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August 18, 2009

What is EOQ?

EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory.

EOQ is also referred to as the optimum lot size.

The formula to calculate the economic order quantity is the square root of [(2 times the annual demand in units times the incremental cost to process an order) divided by (the incremental annual cost per unit to carry an item in inventory)].

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9 Responses to “What is EOQ?”

  1. Data on August 21st, 2009 6:15 am

    “EOQ is essentially an accounting formula that determines at which the combination of order, costs and inventory carrying cost are the least. The result is the most cost effective quality to order. In purchasing this is known as order quantity, in manufacturing it is known as the production lot size.”

    For more knowledge about EOQ you can visit at: http://www.slideshare.net/sikanderkush/economic-order-quality-eoq

    I hope it will help you.

    Thanks & Regards
    Patrick
    Senior Administrator
    http://www.recoverybull.com

  2. Shirley Carrie on August 30th, 2009 9:45 am

    Could you advise on an entry for a corp.
    The corp started with just $1,000 in the business account The owner / stockholder keeps transferring funds from his personal account to the business account to keep up with the corp’s bills - should these trnasfers be treated as a loan from the owner or could the entries be made to paid in capital account. I am not sure which direction is a better entry. Thanks

  3. ACoach on August 30th, 2009 4:59 pm

    Depends on the owner’s intention. Are the transfers a loan to the corporation that must be repaid? If so, there should be a note payable from the corporation and it should be reported as a liability. If the owner is permanently investing additional money into the corporation, then it should be documented with shares of stock and recorded as paid-in capital. There are advantages for each approach.

  4. shakeel on August 31st, 2009 4:50 am

    i am working in a showroom and statement of our accounts not shown the correct profit and loss and also in our system inventory in negative.
    could you please advise us about this matter.

    thanks and regards

  5. Kasue on September 2nd, 2009 11:17 am

    Can EOQ be applied to ordering and stocking office supplies? Is there an accepted formula for determining the amount of supplies to maintain in stock for optimal cost efficiency, taking into consideration the office size?

  6. sunday on September 3rd, 2009 5:54 am

    EOQ: This is a model used in stocking to minimize future economic loss.

  7. evansnamale on September 4th, 2009 7:34 am

    i have problems delivering this topic to students.your book will be an influential asset in order to get best results as iam a lecturer.
    yours, faithfully
    E.Namale

  8. Maureen on September 4th, 2009 11:32 am

    is EOQ the same as EBQ?

  9. viswanathan on October 12th, 2009 6:24 am

    How do we do costing for promotions made in the retail industry? Eg: If want to make promotion of 1+1 for a product, how do i arrive at the Selling price for a given margin

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