Basic eoq model, Finance Basics

Basic EOQ Model

The basic inventory decision model is Economic Order Quantity or called EOQ model. This model is specified via the following equation as:

334_Basic EOQ Model 1.png

Whereas:Q is the economic order quantity

               Cn is the cost of holding inventories per unit per order

               Co is the cost of putting and obtains an order

               D is the annual demand in units

The net cost of operating the economic order quantity is specified via total ordering cost in additional total holding costs.

TC = ½QCn + ((D/Q) C0)

Whereas: Total holding cost = ½QCn

Total ordering cost = (D/Q) C0

The holding costs involve as:

  1. Storage costs
  2. Cost of tied up capital
  3. Obsolescence costs
  4. Insurance costs

The ordering costs involve as:

  1. Shipping and handling costs
  2. Cost of placing orders such as telephone and clerical costs
Posted Date: 2/1/2013 2:49:54 AM | Location : United States







Related Discussions:- Basic eoq model, Assignment Help, Ask Question on Basic eoq model, Get Answer, Expert's Help, Basic eoq model Discussions

Write discussion on Basic eoq model
Your posts are moderated
Related Questions
Significance of Cost of Finance The cost of capital is Significance since of its application in the following areas as: i) Long-term investment decisions - In capital b

You own a two-bond portfolio. Each has a par value of $1,000. Bond A matures in five years, has a coupon rate of 8 percent, and has an annual yield to maturity of 9.20 percent. Bon

some report about credit bank

Petroleo Brasileiro (PBR) has just issued 1M one year bonds. Each bond hasa face value of1,000 Reais. Owners of the bonds are entitled to receive $R 1000 back at the end of the yea

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will

BAC is considering an issue of preferred stock.  The dividends are 8.12% of the $25 par value. a.    If the present price is $26.25 per share, what is the return on the preferre

Actions of Shareholders in Agency Conflict a) Disposal of assets required like collateral for the debt in this. In this case the bondholder is exposed to more risk becaus

Basic economic order quantity (EOQ) model  This model is one of the oldest and most commonly used in inventory control. It is based on a number of assumptions:  The dem

Download a set of financial statements "Creative Technology Ltd" From that set of Financial Statements. IN YOUR OWN WORDS, understand what the main revenue  streams of the business

Five years ago, you bought a house for $151,000, with a down payment of $30,000, which meant you took out a loan for $121,000. Your interest rate was 5.75% fixed. You would like to