Ordering Cost Calculator

Formula

To calculate the ordering cost:

$OC = \sqrt{ \frac{2 \cdot AD \cdot CPO}{CC} }$

Where:

$\text{OC}$ is the Ordering Cost (\$)
$AD$ is the Annual Demand
$CPO$ is the Cost per Order (\$)
$CC$ is the Carrying Cost per Unit (\$)

Ordering Cost

The Ordering Cost refers to the cost associated with placing and receiving orders for inventory. It typically includes administrative costs, transportation costs, and any other expenses related to ordering. This cost is crucial in inventory management and economic order quantity (EOQ) models. By calculating the ordering cost, businesses can determine the optimal order size that minimizes total inventory costs, including both ordering and carrying costs. Effective management of ordering costs helps in improving overall operational efficiency and profitability.

Example Calculation 1

Let's assume the following values:

Annual Demand ( $AD$ ) = 500 units
Cost per Order ( $CPO$ ) = $100
Carrying Cost per Unit ( $CC$ ) = $5

Using the formula:

$OC = \sqrt{ \frac{2 \cdot 500 \cdot 100}{5} } = \sqrt{ \frac{100000}{5} } = \sqrt{20000} \approx 141.42$

The ordering cost is approximately $141.42.

Example Calculation 2

Let's assume the following values:

Annual Demand ( $AD$ ) = 1000 units
Cost per Order ( $CPO$ ) = $150
Carrying Cost per Unit ( $CC$ ) = $10

Using the formula:

$OC = \sqrt{ \frac{2 \cdot 1000 \cdot 150}{10} } = \sqrt{ \frac{300000}{10} } = \sqrt{30000} \approx 173.21$

The ordering cost is approximately $173.21.