Assessment of Relevant Costs in the Wilson EOQ (Economic Order Quantity) Model

摘要

This thesis presents a framework for determining ordering and holding costs as parameters in Economic Order Quantity (EOQ) type inventory models. The concept of relevant costs is discussed from a theoretical perspective. Regression analysis was used to compare annual ordering cost and the number of orders at Ships Parts Control Center (SPCC), Mechanicsburg. The relationship was found to be inverse over the years 1976-1988. This indicates that a critical assumption for the use of EOQ models is being violated at SPCC. Various probability distributions were used to simulate how total variable cost was affected by changes in the holding cost parameter. The results indicate that the feasibility of applying different holding cost rates for various items should be further explored.