<![CDATA[The accuracy of the Economic Order Quantity (EOQ) model relies on the validity of its input parameters, particularly the holding cost. Conventional practices often adopt a full-costing accounting approach by incorporating fixed warehousing costs (rent, depreciation, salaries) into the decision variable. This practice is reinforced by financial reporting standards IFRS (IAS 2 Inventories) and the corresponding Indonesian standard PSAK 202 (effective 2024), which require the allocation of fixed production and warehousing overheads to inventory based on normal capacity. The objective of this study is to reconstruct the EOQ holding-cost parameter by separating those fixed warehousing overheads from the relevant variable costs that should drive replenishment decisions under warehouse capacity constraints. Utilizing conceptual modelling and numerical simulation, this research proposes a reconstruction of the EOQ model using a Step-Wise Cost Function that accounts for warehouse capacity constraints. Mathematical derivation and numerical simulation demonstrate that while the financial impact of parameter errors is dampened by the model’s robustness (cost increases of 6–25%), the operational distortion is significant. The inflation of holding costs leads to a surge in ordering frequency by up to 100%, triggering logistical inefficiencies and facility congestion. This study recommends a strict decoupling of financial reporting data from operational decision-making data to mitigate these hidden operational risks.]]>
