EOQ Model Flashcards
1
Q
What are the assumptions of the EOQ Model? (6)
A
- ONLY ONE PRODUCT is produced
- annual DEMAND requirements are KNOWN
- CONSTANT DEMAND RATE
- LEAD TIME is KNOWN and constant
- each order is received in a SINGLE DELIVERY
- NO QUANTITY DISCOUNTS
2
Q
How do you calculate the annual ordering costs?
A
(Demand * Ordering cost) / Order Quantity in Units
3
Q
How do you calculate the annual holding costs?
A
Holding costs per unit per year * Order quantity) / 2
4
Q
What components make up the total cost?
A
Annual Ordering Costs + Annual Holding Costs
5
Q
How do you calculate the Economic Order Quantity?
A
[(2DemandOrdering Costs per Order)/Holding costs per unit per year]^0.5
6
Q
Order Cycle is defined as
A
the time interval at which orders are placed
7
Q
Time between orders =
A
Order Cycle = Order Quantity / Demand
