Question

If, in a given situation, the EOQ is 400, then the average amount of cycle stock will be...?

a) 0
b) 50
c) 100
d) 200

Answer 1

The average amount of cycle stock with an EOQ of 400 is 200, calculated as half of the EOQ.

Step-by-step explanation:

If the Economic Order Quantity (EOQ) is 400, this refers to the optimal number of units that should be purchased to minimize the total costs associated with inventory, including ordering and holding costs. The average amount of cycle stock is calculated by taking half of the EOQ.

This is because cycle stock fluctuates between zero, just after the inventory has been replenished, and the EOQ, just before the new order arrives. As the inventory is used up over time, the average amount is simply the midpoint of this range.

Therefore, with an EOQ of 400, the average cycle stock would be:
EOQ / 2 = 400 / 2 = 200