Underlying Assumptions
- The ordering cost is constant.
- The rate of demand is known, and spread evenly throughout the year.
- The lead time is fixed.
- The purchase price of the item is constant i.e. no discount is available
- The replenishment is made instantaneously, the whole batch is delivered at once.
- Only one product is involved.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)
Read more about this topic: Economic Order Quantity
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