Hey friends, I am going to tell you about Economic Order Quantity (EOQ).
A decision about how much to order has great significance in inventory management. The quantity to be purchased should neither be small nor big because costs of buying and carrying costs are very high. EOQ is the order size of the lot to be purchased which is economic viable. This is the quantity which can be purchased at minimum costs. It is the point at which carrying costs and ordering costs are equal.
If purchases are made in large quantities, carrying costs will be high & ordering costs will be low & vice-versa.
Hence, it is necessary to determine the order quantity for which ordering and carrying cost are the minimum.
Friends my next article will be on Ordering Cost & Carrying Cost.
