Question

7. What is the difference between independent and dependent demand, and how does this difference affect inventory control?
8. What are the underlying assumptions of the basic EOQ (economic Order Quantity) model?
9. What is the relation between ordering and carrying costs if an EOQ is used?

Answer 1

7. Independent demand is a demand for a complete item or product which is a finished product in itself for example a chair, a dustbin, a laptop etc, these are independent products

Dependent demand is a demand for a part or accessories or component of a finished, which will be used to make a finished product such as handle of a dustbin, Battery of a laptop, Motherboard of a computer etc.

8. Following are the basic assumptions of EOQ Model:-

a) Rate of Demand remains unchanged

b) Minimum stock quantity (MSQ) remains zero

c) Price per unit remains unchanged and no such discount is available

d) Ordering cost is same and remains constant

9. Relation between ordering and carrying costs if an EOQ Model is used

Ordering cost is the cost of ordering single order of raw material however the carrying cost is the cost of managing & handling all the Inventory on an average during the specified period.

Ordering cost will be less when number of orders is less thereby increasing the carrying cost of the inventory and Ordering cost will be more when number of orders is more thereby decreasing the carrying cost of the Inventory.

At EOQ point the ordering cost and carrying cost of Inventory is always equal.

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