The following describes how you calculate the EOQ for an item using quantity dependable prices.
The system first calculates the EOQ for all prices on the Purchase prices panel in the Item file. Then it starts to compare the calculated EOQ with the corresponding quantity limit, starting with Act price 5. If the calculated EOQ for Act price 5 is greater than or equal to limit 5, the system selects this EOQ. If it is not, the system does the same control for Act price 4 etc. See Calculation below.
Prerequisites
Assume the following applies:
| System currency = GBP |
| Stock rate = 15 % |
| Order cost = 10 GBP |
| Annual forecast = 50000 |
| Act price 1 = 200 GBP |
| Act price 2 = 192 GBP, limit 100 EACH |
| Act price 3 = 190 GBP, limit 200 EACH |
| Act price 4 = 188 GBP, limit 300 EACH |
| Act price 5 = 186 GBP, limit 400 EACH |
| Stock unit = EACH |
| Purchase unit = EACH |
- Select the Calculate EOQ menu item.
- You access EOQ calculation. Click OK to run the calculation. (Note: If Interactive process is set to YES in Work with system user profiles for your profile, you can press F2 to run the calculation interactively).
Calculation/Check value
When the system has calculated the EOQ, you can view the value in the Order quantity field in the Item file, Inventory information panel.
The formula is:
| SQRT (2 * order cost * annual forecast) / (purchase price * stock rate) |
Calculate EOQ for Act price 1 to 5:
| For Act price 1: | SQRT (2 * 10 * 50000) / (200 * 15 %) = 182.574 |
| For Act price 2: | SQRT (2 * 10 * 50000) / (192 * 15 %) = 186.339 |
| For Act price 3: | SQRT (2 * 10 * 50000) / (190 * 15 %) = 187.317 |
| For Act price 4: | SQRT (2 * 10 * 50000) / (188 * 15 %) = 188.310 |
| For Act price 5: | SQRT (2 * 10 * 50000) / (186 * 15 %) = 189.321 |
Compare EOQ with limits, starting with Act price 5:
If EOQ Act price n = limit n, then select. If not continue with Act price 4 etc.
| For Act price 5: | 189.321 = 400 ? NO |
| For Act price 4: | 188.310 = 300 ? NO |
| For Act price 3: | 187.317 = 200 ? NO |
| For Act price 2: | 186.339 = 100 ? YES – select this EOQ. |
The EOQ is 186.339 EACH