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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)].