In the EOQ formula Q* = sqrt((2DS)/H), what does D stand for?

• A. Holding cost per unit per year
• B. Order cost per order
• C. Annual demand
• D. Lead time

Answer: (C)

The value D in the EOQ formula represents the annual demand—the total number of units you expect to use or sell in a year. This demand sets the scale for how large each order should be because the optimal order quantity balances two types of yearly costs: ordering costs (S) and holding costs (H). When D increases, the optimal Q* grows, but only with the square root of D, reflecting the balance between placing orders less frequently and holding more inventory. The other terms in the formula have different meanings: holding cost per unit per year is H, not D; the order cost per order is S; lead time affects service level and safety stock but not the basic EOQ quantity. So D stands for annual demand.