Answer
When using the simplest version of the Economic-Order-Quantity (EOQ) decision model, the following assumptions are made:
1. Constant Order Quantity: The same quantity is ordered at each reorder point.
2. **Certainty**: Demand, ordering costs, carrying costs, and the purchase-order lead time are known and certain.
3. Constant Purchase Cost: The purchasing cost per unit remains constant and is not affected by the quantity ordered.
4. No Stockouts: Stockouts (shortages) do not occur; inventory is always available when needed.
5. Simplified Cost Considerations: Costs of quality and shrinkage are considered only to the extent that they affect ordering costs or carrying costs. These costs are typically simplified or omitted.
Work Step by Step
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