Disadvantages of EOQ Analysis




One of the major disadvantages of the economic of quantity modal is that it involves tough and complex mathematical calculations. In order to calculate the EOQ modal a person must have significant knowledge of algebra and related concepts. It is not an appropriate method for the small business owners that are lacking skills in math and algebra. It also requires detailed data from various sources of the company to calculate the end result. For example it requires annual demands of the order, holding cost of the order, ordering cost of the order and the fixed cost of the order to calculate EOQ. 

Another drawback of this modal is that is solely based on assumptions. It assumes that the demand of the order will remain constant through out the year. Moreover it assumes that the purchase price of the order will not change over the year. It also assumes that there will be no change in fixed cost, holding cost and the ordering cost for the time period of a year. Another drawback is that it is limited to the one product business and can not calculate EOQ for the inventories dealing in multiple products. 

If high seasonality is involved in the consumption of the order the EOQ modal is unable to produce a satisfactory result. Moreover it proves beneficial if it is applied to a higher volume of the order that are going to be stored in the inventory.

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Accounting for Management - Accounting theme from Business Law.