EPQ

Question 1

What is EPQ and when is it used?

Answer 1

A model that determines the ideal amount of a product to produce in one batch. It balances setup costs/ launching costs with holding costs to minimize total costs while meeting demand.

Question 2

What are the assumptions for EPQ?

Answer 2

1. Demand is known
2. the lead time is known and constant
3. The usage rate is constant
4. The production rate is constant when occuring
5. Usage occurs continually, while production occurs periodically
6. Only one product is involved
7. No quantity discounts are allowed

Question 3

Can you draw the graph for EPQ in the realistic and ideal case and describe the behavior of each graph

Answer 3

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Question 4

Write the formula for EPQ both in the ideal and realistic case. Describe the differences

Also write the formula for the total relevant costs

Answer 4

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• Ideal case: Consumption occurs after production is finished (plus)
• Realistic case: consumption occurs before production is finished (minus)

Question 5

When is the EPQ formula for withdrawal case valid?

Answer 5

Demand has to be smaller than production:
dvs When D/P< 1
When D/P –> 0, the regular EOQ formula is obtained

• If D/P>1, the formula looses validity since the square root becomes negative

If D/P=1, the formula is not valid, since demand is not allowed to be bigger than productivity in the case of withdrawal and demand is continuous

Question 6

Write formula for EPQ with discounts. Also write formula for total relevant costs

Answer 6

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