The basic eoq model-the deterministic models, Managerial Accounting

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THE BASIC EOQ MODEL

This is the most simple of all the models discussed. In addition to the general assumptions which relate to all deterministic models (i.e. certainty of all parameters) it is further assumed that:

a. Demand is continuous and constant over time.
b. That suppliers lead time is zero i.e. stocks are delivered immediately on the day the order is made.
c. That stock-outs are not permitted.
d. There are no massiveness quantity discounts.
e. Holding costs per unit, ordering costs per order and costs per unit are constant.
   
Relevant costs of basic EOQ model:

The related costs that must be considered when determining optimum inventory levels can be classified into two categories:

(i) Ordering costs.
(ii) Holding (Carrying) Costs.

That is, TC = Ordering Costs + Holding Costs


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