The EOQ Model

The EOQ model is based on a mathematical derivation (with which you would not be expected to be familiar) that achieves a cost minimization between two different types of costs. With this context, answer the following questions:

• What two types of costs are being minimized by the EOQ formula?
• Why does the POQ model differ from the EOQ model (in other words, what circumstances are different in two environments that would use these different models)?
• If a supplier has a "batch size" or "lot size" restriction, how will that impact the organization's ability to place orders of the size suggested by the EOQ formula?
• What will be the effect on costs if an organization fails to order the EOQ in each time period (discuss both the possibility of ordering too much each time an order is placed and the possibility of ordering too little each time an order is placed)?
• Give an example of an organization that uses the EOQ to determine how much they order each time an order is placed. Cite the source of your example.