Final answer:
The correct answer is option e) both a and b.The EOQ model helps managers determine the optimal order quantity that minimizes the total cost of inventory by balancing annual demand and inventory holding costs.
Step-by-step explanation:
The EOQ (Economic Order Quantity) model helps managers determine the optimal order quantity that minimizes the total cost of inventory. It takes into account both the annual demand (option a) and the magnitude of inventory holding costs (option b) per unit, per year.
The EOQ model considers the trade-off between the cost of placing an order (including ordering costs and transportation costs) and the cost of holding inventory (including carrying costs, such as storage, insurance, and obsolescence).
By calculating the EOQ, managers can balance the cost of ordering too frequently with the cost of ordering too infrequently. The formula for EOQ is:
EOQ = √((2 * Annual Demand * Holding Cost) / Ordering Cost)
Therefore, the correct answer is option e) both a and b.