Economic Order Quantity

Variables

• $Q^*$ = optimal order quantity
• $C$ = cost per order event (not per unit)
• $R$ = annual demand of the product
• $P$ = purchase cost per unit
• $F$ = holding cost factor; the factor of the purchase cost that is used as the holding cost (this is usually set at 10-15%, though circumstances can require any setting from 0 to 1)
• $H$ = holding cost per unit per month ($H=PF$)

Formula

References

• Harris, F. W. Operations Cost (Factory Management Series), Chicago: Shaw (1915).
• Wilson, R. H. "A Scientific Routine for Stock Control" Harvard Business Review, 13, 116-128 (1934).

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