This is very simple, however, I have the following setup
Suppose that the company ABC has a product that shows a constant annual demand rate of 3600 items. One item costs £3. Ordering cost is £20 per order and holding cost is 25% of the value of inventory.
What I want to do is calculate the EOQ
$$ EOQ = \sqrt{\frac{2DS}{H}} $$
Where
- D = annual demand (here this is 3600)
- S = setup cost (here that's £20)
- H = holding cost
- P = Cost per unit (which is £3 here)
I figured that I would have
$$ H = 0.25 \times 3 = 0.75 $$
I'm sceptical about this result though.