Economic Order Quantity / Ordering quantity

One important question before the materials department, when placing an order before the supplier,  is to select an optimum order size  which is also called economic order quantity. Economic order quantity(EOQ) is the optimum ordering quantity i.e. the quantity for which cost of holding plus the cost of purchasing is the minimum. The factors that affect EOQ are material carrying charges and the ordering cost associated with placing the order. The basic aim behind setting of EOQ is to minimise both the costs. The material carrying costs include interest on the…