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 aims to minimize the total cost of inventory by finding the ideal order quantity. If an order quantity is larger than the EOQ, it means holding more inventory than necessary, leading to higher annual holding costs compared to the costs of placing orders (ordering costs). The EOQ formula balances these two costs to find the most cost-effective order size.

Which One of the Following Statements Regarding the Economic Order