Eoq mathematical model, Managerial Accounting

EOQ mathematical model

As costs of ordering and holding stock are equal at the EOQ point, we can build a simple mathematical model to solve the problem, as follows:

(Q/ 2) X  H = (A/Q) X P
H = holding cost per unit
A = annual demand
P = cost of placing an order


Using the data in the previous example:


Although the model assumes that holding and ordering costs are fixed, this simplification is acceptable given a relatively unchanging level of production activity.  In addition, because the total cost curve in the figure is relatively flat either side of the EOQ, minor errors and approximation in the variables used in the calculation may not affect the end result significantly.

Practical constraints on the use of the model include restrictions on the available storage space, the availability of quantity discounts (though the model can be modified in this respect), the seasonal nature of supplies, the shelf-life of products and delivery schedules imposed by suppliers.



Posted Date: 12/5/2012 8:08:56 AM | Location : United States

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

Write discussion on Eoq mathematical model
Your posts are moderated
Related Questions
Non-zero lead time (determining reorder point) This basic EOQ model assumes that the suppliers lead time is zero (i.e. goods are delivered immediately on the day the order was

Testing the Slope The strong point of the relationship among the dependent variable and each of the independent variables can be determined using 3 methods: 1) Correlation

Service time-probability distribution curve A common example is that service times follow an exponential probability distribution i.e. y=e -x Service channels - t

Marginal cost or incremental cost pricing method: Here the company may work on the premise of recovering its marginal cost and getting a contribution towards its overheads. Thi

SENSITIVITY ANALYSIS OF EOQ MODEL Sensitivity Analysis is regarded with the manner in which those results of solutions change in response to change in model parameters.

JIT purchasing arrangements JIT philosophy also extends to adapting JIT purchasing techniques whereby delivery of material immediately precedes their use. By arranging with sup

Firms need cash to invest in inventory, receivables and fixed assets and to create payments for operating expenses, so as to increase earnings and sales and make sure the smooth ru

It is the most practical way of estimating working capital needs. In such method, the finance manager gets ready a working capital forecast. While preparing such forecast, firstly

What are the Objectives of Intra company transfer pricing The objectives of Intra company transfer pricing are: 1) Evolution of performance and efficiency of each division.

monetaryor non monetary which will arise as aresult of implemenntinng the project