The economic lot size and relevant costs

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 as dramatic as some authors suggest.