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/C_h

= √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