In the EPQ model,if all the assumptions are true,then the total annual cost associated with the inventory is ______.
A)the sum of total annual setup cost and the total annual holding cost
B)the sum of total annual setup cost and the total annual ordering cost
C)the sum of total production cost and the total annual ordering cost
D)the sum of total production cost and the total annual holding cost

Question

Quizplus · Accepted Answer

In the EPQ model, the total annual cost associated with the inventory is the sum of total annual setup cost and the total annual holding cost. This is because the EPQ model assumes that there is a fixed setup cost associated with each production run, and that there is a cost associated with holding inventory (such as storage costs and the cost of capital tied up in inventory). Therefore, option A is the correct answer. Option B is incorrect because it mentions the total annual ordering cost instead of the holding cost. Option C and D are also incorrect because they mention production cost, which is not included in the EPQ model assumptions.

In the EPQ Model,if All the Assumptions Are True,then the Total