Economic Order Quantity (EOQ) – An Extension

Abstract

The aim of this paper is to illustrate the determination of the Economic Order Quantity (EOQ) or Economic Number of Orders (ENO) when the Total Ordering Cost (TOC) and Total Handling Cost (THC) are not equally the same. For this purpose, two assumptions of the basic EOQ model - (a) the constant unit handling cost, and (b) the constant per order cost - are relaxed; and instead, their varying conditions are considered. Hence, this paper presents two exhibits to make the readers understand the EOQ at the condition where the Total Handling Cost is not equal to the Total Ordering Cost (THC ≠ TOC). Accordingly, Exhibit 1 relaxes the assumption of 'constant per order cost' and considers the concepts of fixed cost and variable cost for placing an order. Also, Exhibit 2 relaxes the assumption of 'constant unit handling cost' and illustrates with the varying handling cost per unit for the ordering quantity (Q) in an order. These exhibits support the situations where the EOQ (or ENO) can be determined at the condition where THC ≠ TOC. Notably, for both exhibits, appropriate tables and figures are also presented for the readers’ convenience to understand the presentation of the paper.