The economic lot size and relevant costs

M.H. Corbeij, R.A. Jansen

Research output: Chapter in Book/Report/Conference proceedingConference contributionAcademic

8 Citations (Scopus)

Abstract

In many accounting textbooks it is strongly argued that decisions should always be evaluated on relevant costs; that is variable costs and opportunity costs. Surprisingly, when it comes to Economic Order Quantities or Lot Sizes, some textbooks appear to be less straightforward. The question whether described EOQ-models are in fact based upon variable costs and opportunity costs is generally not explicitly dealt with. This paper will investigate relevant costs if lot sizes in a components manufacturing plant are changed. The nature of opportunity costs is examined and several kinds of (semi-)variable costs regarding the use of (infrastructural) capacity and material flow are discussed. In this manner, it is shown that in EOQ-models sunk costs are always included. It also occurs that variable costs must be analyzed carefully. This is also the case for more advanced models as described by for instance Wagner and Within or Bertrand. Opportunity costs are in fact neglected, which nevertheless is not always that dramatic as some authors suggest.
Original languageEnglish
Title of host publicationStrategic and operational issues in production economics : proceedings of the seventh international working seminar on production economics, Igls, Austria, February 17-21, 1992
EditorsR.W. Grübström, H.H. Hinterhuber, J. Lundquist
Place of PublicationAmsterdam
PublisherElsevier
Pages519-530
ISBN (Print)0-444-81689-5
DOIs
Publication statusPublished - 1993

Publication series

NameInternational Journal of Production Economics
Volume30-31
ISSN (Print)0925-5273

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