Appendix

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A Economic Order Quantity Objective Derive the economic order quantity

$($

EOQ

$)$

formula. Analysis: Given an annual demand

$,$

order cost

$,$

unit cost

$,$

and annual holding cost

$,$

our goal is to estimate the lot size

that minimizes the total annual cost. For a lot size of

$,$

the total annual cost is given by Total annual cost,

$=$

$($

$)$

$+$

$($

$2$

$)$

$+$

To minimize the total cost, we take the first derivative with respect to the lot size

and set it to zero. Taking the first derivative with respect to

$,$

we have

$($

$)$

$=$

$2$

$+$

$2$

Setting the first derivative to be zero, the EOQ is given by

$2$

$=$

$2$

DShCorQ:

$=$

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