The economic order quantity approach states that inventory order sizes should be determined in which one of the following manners?
A)By dividing annual item sales by the carrying cost per item and multiplying by 2
B)By computing the average number of items sold each month
C)By equating restocking costs with carrying costs
D)By dividing the inventory into various groups based on the value per item
E)By computing the amount of the derived demand

Question

Quizplus · Accepted Answer

The economic order quantity approach suggests that the optimal inventory order size is determined when restocking costs equal carrying costs. This is the point at which total inventory costs are minimized. A and B are incorrect because they do not take into account carrying costs or restocking costs. D and E are also incorrect as they do not directly relate to the economic order quantity approach.

The Economic Order Quantity Approach States That Inventory Order Sizes