Abstract: Separately minimizing either inventory cost of finished good or that of raw material can hardly make the manufacturer get optimal control strategy in the study of inventory management.This paper develops an integrated EPQ model jointly considering both inventory cost of finished good and that of raw material.The unique optimal solution is found as a set of parameters consisting of optimal order times of raw material,optimal production times in order interval of raw material and optimal service level by means of an it erat ive sear ch met ho d.T he main parameters are given a sensitivity analy sis.The evidence is provided for the inventory decision-making of those production enterprises.

Key words: deteriorating item, inventory cost, EPQ model, backlogging rate