Tuesday, 2 February 2016

Number of orders Formula

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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