The equation for economic order quantity shows that if the holding costs are high,then ______.
A)order quantities will be smaller to keep annual holding costs low
B)order quantities will be larger to keep our annual holding costs low
C)order frequency will be smaller to keep our annual holding costs low
D)order frequency will remain the same,as it is not dependent on holding costs

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) formula calculates the optimal quantity of inventory to order based on various costs, including holding costs. Holding costs are the costs associated with storing inventory, such as rent, utilities, insurance, and security. If holding costs are high, it means that the company will incur significant expenses to maintain inventory in its warehouse. As a result, to minimize these costs, the EOQ will be lower, meaning the company will order smaller quantities of inventory more frequently. This reduces the amount of inventory the company is holding at any given time, thereby reducing holding costs. Therefore, choice A is the correct answer.

The Equation for Economic Order Quantity Shows That If the Holding