Which one of the following statements concerning the economic order quantity (EOQ) is True?
A) The EOQ is the order quantity that minimizes annual inventory holding costs.
B) An increase in demand will increase the EOQ.
C) The time between orders (TBO) will increase with an increase in holding costs.
D) The EOQ formula assumes that there are only three relevant costs: holding, transportation, and setup.

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) model is designed to minimize the total inventory costs, which include both ordering costs (such as setup costs) and holding costs. An increase in demand leads to an increase in the EOQ because it aims to balance the costs of ordering and holding inventory. Higher demand means more frequent orders are needed to maintain stock levels, thus increasing the EOQ to optimize the balance between these costs.

Which One of the Following Statements Concerning the Economic Order