Question

Discuss the parameters required to calculate EOQ.

When can EOQ be implemented?

Explain various costs associated with inventory.

Answer 1

Answer:

Components of the EOQ 

Formula:

D: Annual Quantity Demanded.

Q: Volume per Order.

S: Ordering Cost (Fixed Cost)

C: Unit Cost (Variable Cost)

H: Holding Cost (Variable Cost)

i: Carrying Cost (Interest Rate)

EOQ applies only when demand for a product is constant over the year and each new order is delivered in full when inventory reaches zero. There is a fixed cost for each order placed, regardless of the number of units ordered.

Inventory costs are all costs associated with ordering, holding and managing the inventory or stock of an operation or business. These inventory costs include Ordering costs, holdingcosts, and shortage costs.