Analysis of EPQ Model Based on Activity-Based Costing

To analyze the effects of activity-based costing (ABC) on the economic production quantity (EPQ) model in production-inventory system, a new EPQ model based on ABC is developed in this paper. In the new model, based on ABC perspectives, we analyze the cost drivers other than conventional ones specified in the production-inventory system, and then revise the cost functions according to these cost drivers. In this paper, numerical examples are also given to illustrate the new model by comparing with the classical EPQ model. The results show the new model is more effective than the classical EPQ model in cost control.