Economic Order Quantity Calculation

The Item cost rollup function also computes the so-called economic order quantities (for purchasing or for production). 

For a given item, this calculation requires data:

•      An estimate of the annual demand (entered in the Item window, Parameters tab).

•      An estimate of the Inventory costs (entered in the Preferences window).

For the purchased items, the purchasing reorder cost corresponds to the fixed cost associated to each order release.

For the manufactured items, the total release cost for a production batch is equal to the fixed cost associated to the routing operations plus the clerical release cost. 

The economic quantities are determined by the EOQ formula, which takes into account the annual holding cost rate.