Question

which one of the following statements regarding the simple eoq model is true? question 20 options: the simple eoq model assumes demand variability. if an order quantity is larger than the eoq, the annual holding cost exceeds the annual ordering cost. the simple eoq model assumes lead time variability. the simple eoq model allows for price discounts. orders are placed after a fixed review period.

Answer 1

The true statement for the simple EOQ model is that if an order quantity is larger than the EOQ, the annual holding cost exceeds the annual ordering cost. The EOQ aims to balance holding costs with order costs by determining the ideal order size for constant demand and lead time.

Step-by-step explanation:

The correct statement regarding the simple Economic Order Quantity (EOQ) model is: if an order quantity is larger than the EOQ, the annual holding cost exceeds the annual ordering cost. The simple EOQ model is designed to minimize the total cost associated with inventory by finding the ideal order quantity based on set parameters.

Specifically, it assumes a constant demand rate, a constant lead time, and no quantity discounts. This model does not take into account demand or lead time variability and does not allow for price discounts with larger orders. It is a balance between ordering costs, which are higher with frequent, smaller orders, and holding costs, which increase with larger stocks.

Therefore, if you order more than the EOQ, it implies you are holding extra inventory, increasing your holding costs above the costs of placing orders.