In the basic EOQ model,the annual ordering cost is equal to:
A)the EOQ multiplied by ordering cost.
B)the EOQ divided by ordering cost.
C)ordering cost multiplied by the ratio of total annual demand to the EOQ.
D)ordering cost multiplied by the ratio of the EOQ to total annual demand.
E)ordering cost multiplied by annual demand.

Question

Quizplus · Accepted Answer

The formula for annual ordering cost is ordering cost multiplied by the ratio of total annual demand to the EOQ. This makes sense as the ordering cost is incurred every time an order is placed, and the total number of orders placed in a year is equal to the total annual demand divided by the EOQ. Therefore, multiplying the ordering cost by this ratio gives us the total annual ordering cost.

In the Basic EOQ Model,the Annual Ordering Cost Is Equal