Which one of the following statements regarding the economic order quantity (EOQ)is TRUE?
A)The EOQ model combines several different item orders to the same supplier.
B)If an order quantity is larger than the EOQ,the annual holding cost for cycle inventory exceeds the annual ordering cost.
C)The EOQ model assumes a variable demand pattern.
D)When the interest rate drops,the inventory holding cost decreases and the EOQ decreases.

Question

Quizplus · Accepted Answer

The EOQ model calculates the optimal order quantity that minimizes the total cost of holding inventory and ordering inventory. If the order quantity is larger than the EOQ, the annual holding cost for cycle inventory will exceed the annual ordering cost, making it more expensive to hold excess inventory than to order inventory more frequently. Therefore, the statement in option B is true. The other options are incorrect.

Which One of the Following Statements Regarding the Economic Order