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Economic Order Quality or EOQ
Define the model and the three methods of computing the EOQ.
1. Assumptions of the model.
Illustration
The given information was extracted from the books of Danex Holdings relating to its stocks as:
i.
Reorder quantity
1,800
ii.
Reorder period
4 weeks
iii.
Maximum consumption
450 units/week
iiv.
Normal consumption
300 units/week
v.
Minimum consumption
150 units/week
vii
Maximum reorder period
5 weeks
Minimum reorder period
3 weeks
Required
Find out the given stock levels for Danex Holdings as:
i. Minimum stock level
ii. Maximum stock level
iii. Re-order level
Solution
i) Re-order level
= Maximum consumption X maximum reorder period
= 450 units X 5 weeks
= 2,250 units
ii) Maximum stock level
= reorder level + reorder quantity-(Minimum consumption X minimum reorder period)
= 2250 + 1800 - (150 X3) = 4050 - 450 = 3600 units
iii) Minimum stock level
= Reorder level - (Normal consumption X normal reorder period)
= 2,250 - (300 X 4) = 2250 - 1200 = 1050 units
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