The total annual cost for the economic order quantity model is
A) purchase cost + ordering cost + holding cost.
B) fixed ordering cost + holding cost.
C) purchase cost + fixed ordering cost.
D) unit cost + variable ordering cost + holding cost.

Question

Quizplus · Accepted Answer

The total annual cost for the economic order quantity model is the sum of three components: purchase cost, ordering cost, and holding cost. This formula is designed to minimize the total cost of inventory management, taking into account the trade-offs between ordering too frequently (which would increase the ordering cost) and ordering too infrequently (which would increase the holding cost). Therefore, choice A is the correct answer.

The Total Annual Cost for the Economic Order Quantity Model