Chapter 10, Problem 1DQ

Summary Introduction

Interpretation:

The EOQ and the EPQ recommend nearly identical order sizes, and its relationship with the concepts of instantaneous and no instantaneous relationships.

Concept Introduction:

The formula to calculate economic order quantity is $\text{economic}\text{order}\text{quantity}=\sqrt{\frac{2\times D\times S}{H}}$

Explanation of Solution

Given information:

The given formula is,

  $\text{economic}\text{order}\text{quantity}=\sqrt{\frac{2\times D\times S}{H}}$

It is a measure to determine the optimal order size of the inventory where the firm cannot replenish, it inventory instantly. In other words, the economic production quantity he evaluate the optimal order size when the inventory increase steadily after the order is place . this concept is applicable when the film produces its own inventory for consumption.

  $\text{economic}\text{order}\text{quantity}=\sqrt{\frac{2\times D\times S}{H}}$

D refers to the annual demand

S refers to the annual fixed ordering cost

H refers to the annual holding costs of the inventory

P refers to the production rate inventory

d refers to the daily demand

Instantaneous replenishment:

It refers to the replenished of inventory immediately after the film places an order for the inventory. The economic order quantity assumes that the firm receives inventory immediate after it places the order.

Determine when the economic order quantity(EOQ) would be equal to economic production quantity(EPQ):

The economic order quantity assumes instantaneous replenishment and consider only the annul demand D order costs S and the holding cost H $\left(\sqrt{\frac{2\times D\times S}{H}}\right)$

On the other hand, the economic production quantity assumes non- instantaneous is replenishment and consider the ratio of daily production P to daily demand d $\left(\sqrt{\frac{p}{p-d}}\right)$ in addition to the annual demand d, ordering costs S and the holding costs H $\left(\sqrt{\frac{2\times D\times S}{H}}\right)$ . the economic order quantity will be equal to economic production quantity. If daily demand or daily consumption is of the order is zero.

Conclusion:

Economic order quantity assumes that the replenishment of inventory is instantaneous. The economic production quantity consider the inventory non- instantaneous and hence, the rate daily production to daily demand. The economic order quantity will be equal to economic production quantity, if the daily demand or daily consumption of the order zero.