Q34. What is Economic Order Quantity? What are its assumptions?
Ans. The quantity of purchase order at which total of ordering cost and carrying cost is minimum is called economic order quantity. At EOQ, total ordering cost and total carrying cost is equal.
Assumptions of EOQ:
- Ordering cost per order is known and fixed.
- Carrying cost per unit per annum are known and fixed.
3. Cost per unit of the material is constant and known.
4. Anticipated usage of material is known.
5. Quantity ordered is received immediately.