# EOQ Calculator Excel

This EOQ calculator can be used by a business to determine the optimum level of inventory units it should order from suppliers or, in the case of a manufacturing business, place in a production run.

The costs associated with inventory include both ordering and holding costs. Ordering costs such as the cost of clerical staff, transport, inspection or production set-up costs, depend on the number of orders placed and tend to increase as the quantity ordered decreases.

In contrast holding costs such as interest costs to fund working capital, warehousing, handling and insurance, depend on the level of inventory held and therefore tend to decrease as the quantity ordered decreases.

It can be seen that the ordering and holding costs move in opposite directions as the quantity ordered changes and therefore at some optimum level the total costs will be at a minimum. This optimum level is referred to as the economic order quantity or EOQ.

## EOQ Calculator Formula

The formula used by the EOQ calculator can be stated as follows.

`EOQ = (2 x D x K/h)1/2`
Variables used in EOQ Formula
D = Total demand for the product during the accounting period
K = Ordering cost per order
h = Holding cost per unit

## Using the EOQ Calculator

The Excel EOQ calculator, available for download below, can be used to calculate the quantity of inventory units which minimizes the total cost of ordering and holding the inventory. The calculator is used as follows.

### Demand

Enter the unit demand for the product for the accounting period. The accounting period is typically one year but can be any length. It should be noted that the total cost calculated by the EOQ calculator will be for the same period.

### Ordering Cost

Enter the ordering cost per order. The ordering costs include transport, administrative staff costs, receiving, and inspecting costs. For a manufacturing business the ordering costs are those associated with the setting up of a production run to manufacture the order quantity. Ordering costs should exclude the cost of the product itself.

### Holding Cost

Enter the holding cost per unit. The holding costs include the interest cost on finance used to fund inventory working capital, warehousing, cost of administrative staff, insurance, obsolescence, deterioration and shrinkage. Holding costs should exclude the cost of the product itself.

The EOQ calculator determines the economic order quantity which is the optimum number of units a business should order with suppliers or, in the case of a manufacturing business, the batch size to be included in a production run.

The calculator also works our the total ordering and holding costs for the period at the economic order quantity.