A REVISION ON COST ELEMENTS OF THE EOQ MODEL

Mehdi Rajabi Asadabadi
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Mehdi Rajabi Asadabadi: Business School, University of New South Wales, Canberra, Australia

Studies in Business and Economics, 2016, vol. 11, issue 1, 5-14

Abstract: The overall objective of this paper is to investigate the fundamental cost elements of the traditional EOQ model and develop the model by expiring some of its unrealistic assumptions. Over the last few decades, there have been numerous studies developing the EOQ model, but the basic cost elements of the EOQ model have not been investigated efficiently. On the other hand, the capital cost of buying inventories seems to be important to be investigated separately as well as holding cost and ordering cost in the model. In this paper, the capital cost of the inventory and possible stepwise increases in holding and setup cost are taken into account to make a revised formula to compute the economic order quantity. The proposed model involves explicitly the capital cost of buying the inventories in the EOQ model to ensure the decision makers that their financial concerns are considered in the revised model and the new order quantity results the minimum total cost.

Keywords: EOQ; holding cost; setup cost; capital cost (search for similar items in EconPapers)
Date: 2016
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