This paper presents a modified inventory model
which accounts for imperfect quality items when
using the EPQ/EOQ formulae. It shows that the
economic lot size quantity tends to increase as the
average percentage of imperfect quality items increase.
This contradicts with the "nding of Rosenblatt
and Lee of reducing the lot size quantity
as the average percentage of imperfect quality items
increase. The reasonable explanation is that
Rosenblat and Lee assume that defective items
are reworked instantaneously and kept in stock.
This increases the holding cost per unit per unit
time that results in lower lot sizes, whereas in this
paper, items of imperfect quality are withdrawn
from stock resulting in lower holding cost per unit
per unit time and larger lot sizes