Economic order quality or eoq, Cost Accounting

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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
vii	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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