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Economic Order Quantity Technique

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What is the Economic Order Quantity technique and what are the basic assumptions the model formula follows? What are some different companies that could benefit from using this type of inventory management and why?

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What is the Economic Order Quantity technique and what are the basic assumptions the model formula follows? What are some different companies that could benefit from using this type of inventory management and why?

The economic order quantity is the amount of inventory that reduces the inventory holding costs and ordering costs to its minimum. Essentially, this is an inventory-related equation that gives its user the optimum order quantity that a company should hold given a fixed cost of production, demand and other costs. The objective of the equation is to minimize the inventory costs. The equation is expressed as EOQ = Square root of ...

Solution Summary

This solution discusses economic order quantity, an inventory-related equation that gives its user the optimum order quantity, along with its assumptions. This solution is 340 words.

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Quantitative Methods: Inventory Model

A product used in a laboratory of the hospital costs $60 to order, and its carrying cost per item per week is one cent. Demand for the item is six hundred units weekly. The lead time is three weeks and the purchase price is $0.60.

a. What is the economic order quantity for this item?
b. What is the length of the order cycle?
c. Calculate the total weekly costs.
d. What is the investment cost for this item?
e. If ordering costs increase by 50 percent, how would that affect EOQ?
f. What would be the reorder point for this item if no safety stock were kept?
g. What would be the reorder point if one thousand units were kept as safety stock?

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