Scribd Logo
Upload

Welcome to Scribd!

  • Eoq 190624174506

    Uploaded by

    Jo Mon
    4 views17 pages
    The document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering costs and carrying costs. It defines EOQ as the order quantity where total ordering costs equal total carrying costs. Ordering costs include placing and receiving orders, while carrying costs include storing and insuring inventory. The EOQ is calculated using a formula that considers annual demand, ordering costs, and carrying costs. The model seeks to find the optimal tradeoff between the opposing costs of ordering and carrying inventory.

    Original Description:

    Original Title

    eoq-190624174506

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering costs and carrying costs. It defines EOQ as the order quantity where total ordering costs equal total carrying costs. Ordering costs include placing and receiving orders, while carrying costs include storing and insuring inventory. The EOQ is calculated using a formula that considers annual demand, ordering costs, and carrying costs. The model seeks to find the optimal tradeoff between the opposing costs of ordering and carrying inventory.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    4 views17 pages

    Eoq 190624174506

    Uploaded by

    Jo Mon
    The document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering costs and carrying costs. It defines EOQ as the order quantity where total ordering costs equal total carrying costs. Ordering costs include placing and receiving orders, while carrying costs include storing and insuring inventory. The EOQ is calculated using a formula that considers annual demand, ordering costs, and carrying costs. The model seeks to find the optimal tradeoff between the opposing costs of ordering and carrying inventory.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 17

    -EOQ-

    ECONOMIC ORDER
    QUANTITY

    VARGHESEKUTTY CB
    varghesekutty997@gmail.com
    WHAT IS • Economic Order Quantity is one of the
    EOQ?
    technique of inventory control which
    minimizes total holdings and ordering
    cost of the year.
    • This is a technique which solves the
    problems of a materials manager.

    varghesekutty997@gmail.com
    EOQ is essentially an accounting formula
    that determines at which the combination of
    DEFINITION order cost and inventory carrying cost are the
    least. The result is the most cost effective
    quality to order. In purchasing this is known
    as order quantity, in manufacturing it is
    known as the production lot size.

    -Dave Piasecki

    varghesekutty997@gmail.com
    • By using this model, the companies can minimize the costs
    associated with the ordering and inventory holding.
    • It can be a valuable tool for small business owners who
    need to make decisions about how much inventory to keep
    CONT. on hand, how many items to order each time, and how often
    to reorder to incur the lowest possible costs.
    • There are two most important categories of inventory costs
    are ordering costs and carrying costs.

    varghesekutty997@gmail.com
    • It is the costs that are incurred on obtaining
    additional inventories.
    ORDERING • They include costs incurred on:
    COST communicating the order, traveling allowance
    and daily allowance to purchase officers,
    printing and stationary, salary of purchase
    department, cost of inspection, cost of receiving
    the material, transportation cost etc.

    varghesekutty997@gmail.com
    • All above cost, other than transport costs remain
    unchanged per order irrespective of the order size.
    • Therefore, it is assumed that ordering cost per order
    CONT. remain constant.
    • The more frequently orders are placed, and fewer the
    quantities purchased on each order, the grater will be
    ordering cost and vice versa.

    varghesekutty997@gmail.com
    ORDERING COST CURVE

    • Here we can see that


    when the size of the
    order decreases the
    ordering cost increases
    and ordering cost
    decreases when the size
    of the order increases
    varghesekutty997@gmail.com
    • It is the cost incurred for holding inventory in
    hand.
    • They include

    CARRYING interest on the money locked up in


    COST stocks, storage costs, spoilage costs,
    insurance, evaporation, godown rent,
    pilferage, obsolescence etc.

    varghesekutty997@gmail.com
    • They are assumed to be constant per unit of inventory.
    CONT. • The large the volume of inventory, the higher will be the
    inventory carrying cost and vice versa

    varghesekutty997@gmail.com
    CARRYING COST CURVE

    • Here we can see that when


    the order size increases the
    storage cost also increases
    and vice versa

    varghesekutty997@gmail.com
    ECONOMIC ORDER QUANTITY CURVE

    • Ordering costs and carrying costs


    are quite opposite to each other.
    • If we need to minimize carrying
    costs we have to place small
    order which increases the
    ordering costs.
    varghesekutty997@gmail.com
    • If we want minimize ordering costs we have to place few
    orders in a year and this requires placing large orders
    which in turn increases the total carrying costs for the
    period.
    CONT. • We need to minimize the total inventory costs, Thus EOQ
    is determine by the intersection of ordering cost curve and
    carrying cost line.
    • At this point total ordering cost is equal to total carrying
    cost, and the total of the two costs is the least.
    varghesekutty997@gmail.com
    CALCULATION
    EOQ = √ 2Co*A
    Cc
    OF EOQ
    Where;
    Co- ordering cost
    Cc- carrying cost
    A - annual requirement of the material in
    . number of units

    varghesekutty997@gmail.com
    QUESTION  X Ltd entered into a contract with a company
    for purchase of 12,360 instruments at the rate
    of rupees 235 per unit. Carrying cost is
    estimated as 47 rupees per instrument.
    Ordering cost is estimated as 2000 rupees.
    Calculate EOQ.

    varghesekutty997@gmail.com
    EOQ = √ 2Co*A
    Cc
    SOLUTION
    Co= RS. 2000, Cc= RS. 47 per unit,

    A= RS. 12,360

    EOQ =√ 2*2000*12,360
    =1026
    47

    varghesekutty997@gmail.com
    LIMITATIONS
    OF EOQ • It is necessary for the application of EOQ
    MODEL
    order that the demands remain constant
    throughout the year which is not possible.
    • Ordering cost per order can’t be constant
    because it’s including transport cost.

    varghesekutty997@gmail.com
    BY,
    VARGHESEKUTTY CB
    varghesekutty997@gmail.com

    You might also like