How to calculate economic order quantity in cost accounting?
Answers
Explanation:
ECONOMIC ORDER QUANTITY or simply EOQ
the quantity of material to be ordered at one time is known as economic order quantity .
the total cost (TC) of material usually consist of
TC = total acquisition cost + total ordering cost + carrying cost .
total acquisition cost is the amount paid to the seller for the purchase of goods.
carrying cost is the cost of holding the materials in the store and includes cost of storage,space cost of bins and racks ,cost of spoilage in storage and handling, insurance cost, transportation cost and clerical cost.
ordering cost it is the cost of placing orders for the purchase of materials hand includes cost of staff posted in the purchasing department ,cost of stationery postage and telephone charges .
refer the attachment for EOQ formula and an example.
