Calculate EOQ and explain which assumptions must be checked before changing order policy.
A filter has annual demand of 12,000 units. Ordering cost is estimated at $45 per purchase order. Unit cost is $18, and annual holding cost is estimated at 20 percent of unit cost. The inherited order quantity is 1,000 units. EOQ balances ordering cost against holding cost: order too often and transaction cost rises; order too much and inventory carrying cost rises. The common trap is treating the EOQ answer as a command. It is an economic signal that must be checked against MOQ, pallet quantity, lead time, shelf life, and demand stability. Annual demand D = 12,000 units per…
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