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- WHAT ARE THE 4 ASSUMPTIONS ON WHICH ECONOMICORDER QUANTITIES (E.0.0.) ARE BASED?
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Answer #1

Economic Order Quantity is the point at which inventory carrying costs are equal to order costs.This model is used to establish optimal inventory levels.This is the quantity of material which can be purchased at minimum costs. While determining EOQ, it is assumed that the cost of managing inventory is made of ordering costs and carrying costs.

Ordering costs are associated with purchasing or ordering of materials.Where as Carrying costs are costs for holding the inventories and these costs will not be incurred if the inventories are not carried.

Following are the assumptions of EOQ. They are:

a. Demand is uniform and known.

b. Carrying cost and ordering cost will be minimum and equal.

c. No cash and quantity discount available.

d. Inventory cost remains constant through out the period.

e. For EOQ calculation the cost used must be marginal costs.

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