AMIE INDIA Students Forum

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What Does Economic Order Quantity - EOQ Mean?
An inventory-related equation that determines the optimum order quantity that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs. The full equation is as follows:

EOQ = Under root of ( 2SD/PI )


where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)