What is EOQ? What would be the average time between orders

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Expert Solution

Economic order quantity (EOQ) is considered as an ideal order quantity, where an entity should purchase in order to minimize its inventory costs. It is a type of production scheduling model. It would help in finding the number of products that are optimal to be ordered by the entity. The formula for calculating EOQ is:
Q = √DS\H
Where,
Q = EOQ units
D = Demand in units
S = Order cost
H = Holding cost
This formula is more applicable where demand, ordering cost, and holding costs are constant over time.
The average time between orders mainly refers to the average time taken to receive or place an order. In an annual year, we can't calculate the exact time gap between orders. So we are calculating the average time gap between one order to the next order. It is done by taking the optimal order size and dividing it with by the annual demand. It helps to avoid overproduction and underproduction and an optimal quantity can be maintained.

keosha answered 1 year ago

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