Economic Order Quantity (EOQ):

(i) Economic Order Quantity (EOQ): It is the measure in which the order of the quantity of things can be justified. If the ordering cost is more or carrying cost is more, the inventory or stocking is required. It has three major criteria:
Product Cost Ordering Cost Carrying Cost
(per unit per order) (per unit per year)
Ordering quantity or cost i.e. EOQ can be taken out through following formulae:
E O Q = 2 DCO D= Annual Demand, CO= Ordering Cost per order, CC= Carrying Cost per unit per year.
C C

(ii) Always Better Control (ABC): Expensive Material = Less Quantity
Category Units (Quantity) Cost (Price) Level of Control
A Around 20% 60 – 80% High Level Control
B 40 – 60% 40 – 60% Medium Level Control
C Above 60% Up to 40% Low Level Control
In this, always better control is to be maintained according to the things or material. This technique classify the Inventory into three categories i.e., A, B & C.
‘A’ category represents fewer (less) inventories but very high in Cost, so the high level of control is required for this.
‘B’ category represents average inventory having average cost, so it requires average control i.e., medium level control.
‘C’ category represents maximum inventory but having minimum cost, so the level of control applies here is very low.