Economic Order Quantity - Underlying Assumptions

Underlying Assumptions

  1. The ordering cost is constant.
  2. The rate of demand is known, and spread evenly throughout the year.
  3. The lead time is fixed.
  4. The purchase price of the item is constant i.e. no discount is available
  5. The replenishment is made instantaneously, the whole batch is delivered at once.
  6. 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.)

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