Economic Order Quantity (EOQ) Definition And How To Calculate It

Ever heard of the term economic order quantity? EOQ is able to make the company spend as efficiently as possible. Here’s the discussion.

In accounting, there is a term Economic Order Quantity (EOQ). This term does sound so complicated and difficult to understand.

But actually this term is very easy to understand if you read the explanation below in full.

What Is Economic Order Quantity (EOQ) Definition

The definition of Economic Order Quantity is an effort to regulate the amount of stock so that the costs that need to be incurred by the company become as efficient as possible and keep the stock inventory stable.

This method was invented by an expert named Wilson. Therefore, this framework or working method is known as the Wilson Formula or Wilson EOQ.

Did you know that one of the criteria for a good company is not to have too much stock in the warehouse.

The reason is, putting goods in the warehouse also requires maintenance costs. The more items there are, the higher the cost.

Of course this is not good for the company’s finances. stockpiling also needs to be avoided so that product quality does not decrease which makes consumers feel less satisfied.

Because of these things, the calculation of stock and orders must be arranged in such a way.

Thanks to the invention of Economic Order Quantity, you no longer need to worry about calculating stock and order quantities manually.

With the Economic Order Quantity formula, the amount can be known more precisely.

One way to make your business operational costs efficient, you must do good bookkeeping and financial management.

Elements of Calculation of Economic Order Quantity

In calculating the Economic Order Quantity, there are two important elements that cannot be ignored, namely ordering and storage costs.

1. Booking fee

This order fee includes things that need to be paid by the company during the order delivery process. These costs include:

  • Booking fee
  • Shipping cost
  • Order acceptance fee
  • Completion of payment for goods that have been received

2. Storage fee

Storage costs are calculated from the time the goods have been delivered by the courier or sender to the company.

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