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
