Economic Production Quantity Calculator

Formula

The formula to calculate the Economic Production Quantity (EPQ) is:

\[ \text{EPQ} = \sqrt{\frac{2 \cdot D \cdot S}{H \cdot (1 - \frac{D}{M})}} \]

Where:

$ \text{EPQ} $ is the Economic Production Quantity (units)
$ \text{D} $ is the annual demand quantity (units)
$ \text{S} $ is the setup or ordering cost per order ($)
$ \text{H} $ is the holding or storage cost per unit per year ($)
$ \text{M} $ is the maximum inventory level (units)

What is Economic Production Quantity?

The Economic Production Quantity (EPQ) is a model used in operations management and logistics for determining the optimum order quantity that a company should hold in its inventory to minimize total inventory costs. It considers factors such as demand rate, production rate, setup costs, and holding costs. The EPQ model is useful for businesses that produce their own inventory and need to balance the costs of production, setup, and storage.

Example Calculation

Let's assume the following values:

Annual Demand Quantity (D) = 1000 units
Setup or Ordering Cost per Order (S) = $50
Holding or Storage Cost per Unit per Year (H) = $5
Maximum Inventory Level (M) = 2000 units

Using the formula to calculate the Economic Production Quantity:

\[ \text{EPQ} = \sqrt{\frac{2 \cdot 1000 \cdot 50}{5 \cdot (1 - \frac{1000}{2000})}} = \sqrt{\frac{100000}{2.5}} = \sqrt{40000} = 200 \text{ units} \]

The Economic Production Quantity is 200 units.