Explain the facts on which economic order quantity is depend, Operation Management

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Explain the facts on which Economic Order Quantity is depend

Economic Order Quantity depends on two costs:

 (i) Inventory procurement costs which consists of expenditure connected with

* Obtaining quotations

* Processing Purchase Requisitions

* Expediting and Following up Purchase order

* Receiving materials and after that inspecting them Processing Invoices Procurement costs of seller reduce as the order quantity raises.

  (ii) Carrying Costs that vary with quantity ordered contains 

* Interest on capital investment

* Cost of storage services

 * Cost including deterioration and obsolescence

* Cost of insurance and property tax etc.

 Carrying costs are approximately directly proportional to the order size or lot size quantity.

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