Question

Q1. What were the topics covered in class today. Explain in detail. In class we covered Relevant cost in EOQ models and Holding cost Q2. How are those topics relevant (as covered in class) for an Industrial Engineer in production planning and for a CEO at decision time. Explain in detail. Q3. How is sensitivity handle for EOQ purposes? (As explained in class) in class we we covered relevant costs in EOO models .holding cost and bulk order

Answer 1

1. Relevant cost is the sum of yearly holding cost and yearly ordering costs. We seek to minimize these costs in EOQ model. Holding costs are the costs associated with storing the inventory and the costs of inventory shortages. Hence EOQ becomes all the more important. Bulk order means we buy large quantity at one period of time. This reduces repeated ordering costs.

2. These topics are important because the chief responsibility of these officers is to ensure that there are no shortages of product and there is no inventory lying idle at the same time that makes it unprofitable for the firm. Hence, the concepts help to find out the optimal quantity that will minimize the relevant costs.

3. Sensitivity is handles by measuring the percentage change in total relevant costs assuming that an incorrect assumption is made say, the demand rate is constant and determined or using the non optimal order quantity etc.