Enter the annual demand, cost per order, and order size into the calculator to determine the annual ordering cost for inventory management.

## Annual Ordering Cost Formula

The following formula is used to calculate the annual ordering cost:

AOC = (D / S) * C

Variables:

- AOC is the annual ordering cost ($)
- D is the annual demand (units)
- S is the order size (units)
- C is the cost per order ($)

To calculate the annual ordering cost, divide the annual demand by the order size and then multiply by the cost per order.

## What is Annual Ordering Cost?

Annual ordering cost is a term used in inventory management to describe the total cost incurred from placing orders over the course of a year. It includes all expenses related to the order process, such as administrative costs, shipping, handling, and procurement costs. This cost is a key component in determining the economic order quantity (EOQ), which is the ideal order size that minimizes total inventory costs.

## How to Calculate Annual Ordering Cost?

The following steps outline how to calculate the Annual Ordering Cost.

- First, determine the annual demand (D) in units.
- Next, determine the cost per order (C) in dollars.
- Next, determine the order size (S) in units.
- Next, gather the formula from above = AOC = (D / S) * C.
- Finally, calculate the Annual Ordering Cost (AOC) in dollars.
- After inserting the variables and calculating the result, check your answer with the calculator above.

**Example Problem:**

Use the following variables as an example problem to test your knowledge.

Annual demand (D) = 5000 units

Cost per order (C) = $50

Order size (S) = 200 units