While working a simple EOQ problem, you notice that, with a certain lot size, the annual ordering cost is exactly the same value as the annual inventory carrying cost. Which of the following is true?
A) the lot size is the economic order quantity
B) total cost is at its maximum
C) the annual carrying cost will decrease if the order quantity is increased
D) all of the above
E) none of the above; the phenomenon is merely a coincidence

Question

Quizplus · Accepted Answer

When the annual ordering cost is equal to the annual inventory carrying cost, it means that the total cost is at its minimum and the lot size is the economic order quantity. Therefore, option A is the correct choice. Option B is incorrect because the total cost is at its minimum, not maximum. Option C is incorrect because the annual carrying cost is not affected by the order quantity when the total cost is at its minimum.

While Working a Simple EOQ Problem, You Notice That, with a Certain