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economic order quantity (EOQ) model

(Dictionary)

Author:
Harold Averkamp, CPA, MBA

Definition

A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula for the EOQ model is the square root of [(2 X Units of Annual Demand X Cost to Place an Order or Setup) divided by Carrying Cost per Unit].

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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