Answers

1.

Assumptions of EOQ.

(1) There is no lead time
(2) There is no quantity discount
(3) The rate of demand is known
(4) There will be no opening and closing stock
(5) The holding and ordering cost are controllable

1) Assumptions of EOQ:

– Constant unit price i.e., there is no quantity discounts.

– There is no stockout or back ordering

– Single product is being purchased

– At equilibrium point ordering costs are constant and known

– At equilibrium point demand is constant and known

– At equilibrium point holding costs are constant and known

1 (a) Explain 3 reasons why firms hold inventory:

– To ensure products are available when customers need them. This avoids stockouts and/or lost sales.

– To Manage supply chain uncertainty: holding inventory cushions against delays in supply, production issues, or transportation disruptions.

– Buying purchases reduces unit costs by taking advantage of quantity discount thus firms hold inventory to capitalize on quantity discounts.

1 (b)

Holding cost of G why use 280 instead of 2800