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Explain Economic Order Quantity and Total Cost.
Economic Order Quantity and Total Cost: The total sum of Inventory procurement cost and inventory carrying cost is total cost.
In the given figure, the procurement cost and inventory carrying cost have been plotted regarding quantity in lot. Total cost is computed by adding the procurement cost and carrying cost. Total cost is minimization at the point A and therefore B shows the Economic Order Quantity (EOQ).
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1. Custom Computers, Inc. assembles custom home computer systems. The fan assemblies needed are bought for $24 each and are ordered in quantities of 1500 units. Annual demand is 75
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