Number of orders Formula
Number of orders can be calculated by the following formula
Number of order = Annual Demand of Inventory Quantity per Order |
Number of Orders Example
Annual Demand of Inventory = 80,000
Quantity to be ordered= 10,000
Calculate number of orders?
Solution
Number of orders = Annual Demand of Inventory
Quantity per Order
= 80,000/10,000
= 8 orders
Significance of Number of Order
Number of order during the year helps in understanding and calculating the future ordering cost. Thus number of order calculation is helpful for future budgeting & planning.
Limitation of Number of orders Calculation
Number of order cannot be calculated alone, rather it is calculated with the help of quantity to be ordered i.e. annual demand is divided by quantity order. Therefore quantity to be ordered is calculated in first place (normally by EOQ Formula).
Example
Annual Inventory Demand = 100,000
Cost of placing order = 120
Holding Cost per unit= .7
Calculate Economic order Quantity and number of Order
Solution
1. Quantity Ordered
EOQ = √2CoD/Ch
= √2(120)(100,000)/.7
= 5,855 units
2. Number of Order
Number of orders = Annual Demand of Inventory
Quantity per Order
=100,000/5855
= 17 orders.
Number of order information can be used to calculate the total ordering cost for the year i.e. 17 orders x 120 ordering cost = 2040
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