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A Revision On Cost Elements Of The Eoq Model


  • ASADABADI Mehdi Rajabi

    (Business School, University of New South Wales, Canberra, Australia)


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.

Suggested Citation

  • ASADABADI Mehdi Rajabi, 2016. "A Revision On Cost Elements Of The Eoq Model," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 11(1), pages 5-14, April.
  • Handle: RePEc:blg:journl:v:11:y:2016:i:1:p:5-14

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    References listed on IDEAS

    1. Muhlemann, A. P. & Valtis-Spanopoulos, N. P., 1980. "A variable holding cost rate EOQ model," European Journal of Operational Research, Elsevier, vol. 4(2), pages 132-135, February.
    2. Goh, M., 1994. "EOQ models with general demand and holding cost functions," European Journal of Operational Research, Elsevier, vol. 73(1), pages 50-54, February.
    3. Fredrik Olsson, 2014. "Analysis of inventory policies for perishable items with fixed leadtimes and lifetimes," Annals of Operations Research, Springer, vol. 217(1), pages 399-423, June.
    4. Weiss, Howard J., 1982. "Economic order quantity models with nonlinear holding costs," European Journal of Operational Research, Elsevier, vol. 9(1), pages 56-60, January.
    5. Berling, Peter, 2008. "The capital cost of holding inventory with stochastically mean-reverting purchase price," European Journal of Operational Research, Elsevier, vol. 186(2), pages 620-636, April.
    6. Jaekwon Chung & Dong Li, 2014. "A simulation of the impacts of dynamic price management for perishable foods on retailer performance in the presence of need-driven purchasing consumers," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 65(8), pages 1177-1188, August.
    7. Teunter, Ruud H. & van der Laan, Erwin & Inderfurth, Karl, 2000. "How to set the holding cost rates in average cost inventory models with reverse logistics?," Omega, Elsevier, vol. 28(4), pages 409-415, August.
    8. Pando, Valentín & San-José, Luis A. & García-Laguna, Juan & Sicilia, Joaquín, 2013. "An economic lot-size model with non-linear holding cost hinging on time and quantity," International Journal of Production Economics, Elsevier, vol. 145(1), pages 294-303.
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    EOQ; holding cost; setup cost; capital cost;


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