Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.
A) If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.
B) If the average inventory increases by 20%, then the total carrying costs will increase by 20%.
C) If the average inventory increases by 20% the total order costs will increase by 20%.
D) The EOC is the same for all companies.
E) If the fixed per order cost increases by 20%, then EOQ will increase by 20%.

Question

Quizplus · Accepted Answer

The EOQ model, or Economic Order Quantity model, is designed to minimize the total holding costs and ordering costs. The statement that if the average inventory increases by 20%, then the total carrying costs will increase by 20% is true, assuming the cost per unit of holding inventory remains constant. This is because total carrying costs are directly proportional to the average inventory level. The other statements are incorrect because they misrepresent the relationships between variables in the EOQ formula.

Which of the Following Is True of the EOQ Model