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Identify the equation that is used to find the quantity giving the most economic order. where 'A' is the total item consumed per year 'P' is the purchase cost per order 'C' is the annual inventory carrying cost per item.

Identify the equation that is used to find the quantity giving the most economic order. where 'A' is the total item consumed per year 'P' is the purchase cost per order 'C' is the annual inventory carrying cost per item. Correct Answer <span class="math-tex">\(\sqrt{\frac{2AP}{C}}\)</span>

Explanation:

Economic order quantity (EOQ):

  • Economic order quantity is the size of the order which helps in minimizing the total annual cost of inventory in the organization.
  • When the size of the order increases, the ordering costs (cost of purchasing, inspection, etc.) will decrease whereas the inventory carrying costs (costs of storage, insurance, etc.) will increase.
  • Economic Order Quantity (EOQ) is the size of an order which minimizes total annual costs of carrying and cost of ordering.

C = Cost of holding one unit in inventory for one complete year

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