"Lego Weekend, Holt Hall flickr photo by Dave Catchpole shared under a Creative Commons( BY ) licenseWe now focus on three important inventory models for independent demand as listed below: Basic economic order quantity (EOQ) modelThe basic EOQ model involves ordering a fixed amount of product each time reorderingtakes place, and uses a minimum stock level to determine when to reorder the fixed quantity.This is called the reorder point (ROP). When the number of units of an item in inventoryreaches the reorder point, the fixed order quantity (the EOQ) is ordered. The EOQ model isoften referred to as the two-bin model. When the first bin is empty, the organisation places anorder.Some of the key assumptions of the basic EOQ model are: (1) the time horizon is infinite, (2)demand is not only constant period after period, but it is uniform (technically this implies thatit is continuous and smooth, with no seasonality, large orders, or lumpiness), (3) there are noconstraints on the order size, (4) decisions for one item are made independently of decisionsfor other items, and (5) there is no inflation. While these assumptions may seem restrictiveand unrealistic, the EOQ is known to be a robust model and can at least provide a good basecase or starting point decision. WatchNow, to better understand the EOQ model, watch the following video.You will get a chanceto practice applying the formula in the discussion activity to follow. (10 minutes) (EOQ Economic Order Quantity formula and explanationt, Education Unlocked, 2013 Other modelsThere are two other important models to include in our discussion, which are designed toovercome some of the limitations associated with the EOQ model, particularly where theassumptions that model makes do not hold:? Production Order Quantity (POQ) Model An important assumption of the basicEOQ model is that orders arrive instantaneously and completely (i.e., the productionrate is infinite). While this assumption may be true for purchased parts, producedparts may take time to make. This necessitates a different model, the ProductionOrder Quantity (POQ) Model.? Quantity Discount Model Particularly with business-to-business transactions,quantity discounts are arguably more likely to exist than not. While purchase cost canbe ignored in the basic EOQ model, it must be considered when faced with a quantitydiscount price schedule.3 Inventory management3.4 Discussion activity: EOQ[This page should take about 1 hour to complete]Discussion questions: Economic Order Quantity modelTest your knowledge of this important inventory management model (do the calculations inexcel and upload your excel file)1. MontyPlastic is a manufacturer of injection-moulded plastics in Melbourne. Aninvestigation of the company?s manufacturing facility in Box Hill South yields theinformation presented in the table provided. How would the plant classify these itemsaccording to an ABC classification system?Item Code Average Inventory (units) Value ($/unit)1289 400 3.752347 300 4.002349 120 2.502363 75 1.502394 60 1.752395 30 2.006782 20 1.15 7844 12 2.058210 8 1.808310 7 2.009111 6 3.002.3. At its largest manufacturing facility in Jakarta, Audi?s supplier (for the A4 sedanmodel) produces subcomponents at a rate of 300 per day, and it uses thesesubcomponents at a rate of 12500 per year (of 250 working days). Holding costs are$2 per item per year, and ordering costs are $30 per order.? What is the EOQ?? How many production runs per year will be made?? What will be the maximum inventory level?? What percentage of time will the facility be producing components?? What the annual cost of ordering and holding inventory?Post your responses to the Module 3 Discussion forum, and then read what other studentshave posted (you may need to return to the forum later in the week to see everyone's posts).Do you agree with their answers? If not, why not? Feel free to ask others to justify theirresponses - and, be prepared to justify your own! "