All else equal, a ﬁrm that holds safety stocks of inventory will have a lower economic order quantity
(EOQ) than a ﬁrm that does not.

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) does not depend on whether a firm holds safety stocks or not. EOQ is calculated based on the annual demand, ordering cost, and carrying cost of inventory. Safety stock, on the other hand, is a buffer inventory held to protect against uncertain demand or lead time.

All Else Equal, a ﬁRm That Holds Safety Stocks of Inventory