Enter the annual demand quantity, setup or ordering cost per order, holding or storage cost per unit per year, and maximum inventory level into the calculator to determine the Economic Production Quantity.

Epq (Economic Production Quantity) Formula

The following formula is used to calculate the Economic Production Quantity (EPQ). 

EPQ = sqrt((2 * D * S) / (H * (1 - (D / M))))

Variables:

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

To calculate the Economic Production Quantity, multiply twice the annual demand quantity by the setup or ordering cost per order. Divide this result by the product of the holding or storage cost per unit per year and the difference between 1 and the ratio of the annual demand quantity to the maximum inventory level. Finally, take the square root of the entire expression.

What is a Epq (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.

How to Calculate Epq (Economic Production Quantity)?

The following steps outline how to calculate the Economic Production Quantity (EPQ).

  1. First, determine the annual demand quantity (D) in units.
  2. Next, determine the setup or ordering cost per order (S) in dollars.
  3. Next, determine the holding or storage cost per unit per year (H) in dollars.
  4. Next, determine the maximum inventory level (M) in units.
  5. Next, gather the formula from above: EPQ = sqrt((2 * D * S) / (H * (1 – (D / M))))
  6. Finally, calculate the Economic Production Quantity (EPQ).
  7. 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 quantity (D) = 500 units

Setup or ordering cost per order (S) = $100

Holding or storage cost per unit per year (H) = $5

Maximum inventory level (M) = 1000 units