Question

The primary purpose of the basic economic order quantity model is

a. to calculate the reorder point, so that replenishments take place at the proper time
b. to minimize the sum of carrying cost and holding cost
c. to maximize the customer service level
d. to minimize the sum of setup cost and holding cost e. to calculate the optimum safety stock

Answer 1

D. to minimize the sum of setup cost and holding cost e. to calculate the optimum safety stock

Step-by-step explanation:

Economic order quantity ( EOQ ) is formulated as :

`EOQ= \sqrt[]{(2C_O D)/(C_h) }`

Co = Ordering cost

D = annual demand

Ch = Annual unit holding cost

Economic quantity is the order quantity which minimizes sum of annual cost of ordering and annual inventory holding cost so to minimize the overall cost of the inventory.

ANSWER : d) to minimize the sum of setup cost and holding cost that is to calculate the optimum safety stock.