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SIR,
I AM INTERESTED TO KNOW THE DERRIVATION OF FORMULA OF EOQ WITH EXAMPLE. PLEASE GUIDE MEPlease do not type in capital letters.
The derivation is not in the syllabus – it involves differentiating which cannot be asked in ACCA exams. I assume that you know how to differentiate (if not then I am certainly not going to teach you on here 🙂 )
If the order quantity is Q, then (using the same symbols as the formula does):
the order cost per year is D/Q x Co
The holding cost per year is Q/2 x Ch
So the total cost is (D/Q x Co) + (Q/2 x Ch)
For minimum total cost, you differentiate with respect to Q, and make equal to zero.
Then you will have the formula.
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