Which of the following is true of the EOQ model? Note that the optimal order quantity,Q,will be called EOQ.
A)If the fixed per order cost increases by 20%, then EOQ will increase by 20%.
B)If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.
C)If the average inventory increases by 20%, then the total carrying costs will increase by 20%.
D)If the average inventory increases by 20% the total order costs will increase by 20%.

Question

Quizplus · Accepted Answer

The EOQ model is designed to minimize the total cost of inventory, including both the carrying costs and the ordering costs. If the average inventory increases by 20%, it directly impacts the carrying costs, as these are costs associated with holding or "carrying" inventory over time. Therefore, a 20% increase in average inventory would logically lead to a 20% increase in the total carrying costs, assuming the cost per unit of carrying inventory remains constant. The other options incorrectly interpret the relationships between variables in the EOQ model.

Which of the Following Is True of the EOQ Model