ECONOMICS

Detailed explanation-1: -EOQ inventory models are basically concerned with the timing of orders. The EOQ should be regarded as an approximate quantity rather than an exact quantity. Thus, rounding the calculated value is acceptable. Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.

Detailed explanation-2: -The economic order quantity increases with higher demand and higher carrying costs and decreases with higher ordering costs.

Detailed explanation-3: -∴ So, stochastic demand is not an underlying assumption of the basic EOQ model.

Detailed explanation-4: -Economic Order Quantity (EOQ) is that size of order which minimizes total annual costs of carrying and cost of ordering. It is evident from above that the minimum total costs occur at a point where the ordering costs and inventory carrying costs are equal.

Detailed explanation-5: -The EOQ formula assumes that consumer demand is constant. The calculation also assumes that both ordering and holding costs remain constant.