Explain economic order quantity and total cost, Operation Management

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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.

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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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