Question

A company engaged in the manufacture of auto parts is in the process of deciding which type of inventory management model is best suited for its line of automotive filters, both air and gasoline filters among the models to consider. our basic EOQ model but in reality they are not sure what conditions or characteristics must be presented by the products to be administered with this model, therefore the company manager asks them to write down in a precise and concrete way the characteristics of the product (type composition demand behavior etc). adequate or acceptable to be managed by the basic EOQ model

Answer 1

Answer:

The Economic order quantity model is used in inventory management by calculating the number of units a company should add to its inventory with each batch order to reduce the total cost of its inventory. The cost of inventory include holding, setup costs and shortage cost.

The EOQ model finds the Quantity that minimizes the sum of these costs.

Calculation of EOQ:

• Determmnce the demand in units
• Determine the order cost
• Determine the holding cost
• Multiply the demnad by 2, then multiply the result by order cot
• Dividethe result by holding cost.

EOQ models assumes steady demand os a business product and immediate availability of items to be restocked. It does not account for seasonal or economical fluctuations. It assumes fixed costs of inventory units, ordering charges and holding charges.

EOQ is a company's optimal order quantity that minimizes its total cost related to ordering, reciving and holding inventory. The EOQ formula is best applied in situations where demand, ordering and holding remain constant over time.

Assumptions of EOQ model:

The rate of demand is constant and total demand is known in advance.

The odering cost is constant.

THe unit price of inventory is contant

Delivery time is constant.