Dry Creek Company decreased the size of inventory order quantities that had previously been determined using the EOQ model. What is the impact on the total amount of annual carrying and ordering costs?
A)no change
B)decrease
C)increase
D)cannot be determined

Question

Quizplus · Accepted Answer

Decreasing the size of inventory order quantities below the Economic Order Quantity (EOQ) level increases the total amount of annual ordering costs because more orders will need to be placed each year. It also increases annual carrying costs because the EOQ model is designed to minimize the sum of these costs, so deviating from it generally leads to inefficiencies.

Dry Creek Company Decreased the Size of Inventory Order Quantities