which we can substitute into our EOQ formula:

This is the same optimal order size that we determined on an annual basis. Now we will
compute total monthly inventory cost:
To convert this monthly total cost to an annual cost, we multiply it by 12 (months):
This brief example demonstrates that regardless of the time period encompassed by EOQ
analysis, the economic order quantity is the same.
The EOQ Model with Noninstantaneous Receipt
A variation of the basic EOQ model is achieved when the assumption that orders are received
all at once is relaxed. This version of the EOQ model is known as the noninstantaneous receipt
model, also referred to as the gradual usage, or production lot size, model. In this EOQ variation,
the order quantity is received gradually over time and the inventory level is depleted at the
same time it is being replenished. This is a situation most commonly found when the inventory
user is also the producer, as, for example, in a manufacturing operation where a part is produced
to use in a larger assembly. This situation can also occur when orders are delivered gradually
over time or the retailer and producer of a product are one and the same. The noninstantaneous
receipt model is illustrated graphically in Figure 16.6, which highlights the difference between
this variation and the basic EOQ model.
(Qopt)
total annual inventory cost = (+125)(12) = +1,500
= +125 per month
= (+0.0625)
(2,000)
2 + (+150)
(833.3)
(2,000)
total monthly inventory cost = Cc
Qopt
2 + Co
D
Qopt
=A
2(150)(833.3)
(0.0625)
= 2,000 yd.
Qopt = A
2CoD
Cc
THE EOQ MODEL WITH NONINSTANTANEOUS RECEIPT 763
Begin
order
receipt
End
order
receipt
Order
receipt
period
0
Maximum
inventory level
Average
inventory level
Inventory level
Time
Inventory
depleted
Inventory
replenished
Q—2
(1 – )
Q (1 – ) d—p
d—p
FIGURE 16.6
The EOQ model
with noninstantaneous
order
receipt
The noninstantaneous
receipt model relaxes
the assumption that
Q is received all
at once.