The optimal EOQ occurs where annual ordering costs are equal to annual carrying costs.

Question

Quizplus · Accepted Answer

This statement is true. The Economic Order Quantity (EOQ) model is a formula used to determine the optimal quantity of inventory to order in order to minimize both ordering costs and carrying costs. The EOQ calculation takes into account the annual demand for the item, the cost to place an order, and the cost to hold one unit of inventory for one year. The goal of the calculation is to find the order quantity that minimizes the total cost of inventory, which is the sum of ordering costs and carrying costs. When these two costs are equal, the EOQ is at its optimal level.

The Optimal EOQ Occurs Where Annual Ordering Costs Are Equal