Question

All of the following are true about the basic EOQ model except One half the order size equals the average inventory level. The average dollar value of inventory equals unit price multiplied by order quantity. Annual demand divided by EOQ will give the optimal number of orders per year. The reorder point equals daily demand multiplied by the lead time in days, excluding safety stock.

Answer 1

Hence, the second statement describing the average inventory is false

Step-by-step explanation:

The Economic Order Quantity (EOQ) is the order size that minimizes the balance of ordering cost and holding cost. At the EOQ, the carrying cost is equal to the holding cost. It is the order size that optimizes the investment in stock ordering.

The following statements

The number of orders = Annual demand/order size

Re-order level(point) Average daily usage × average lead time

Average inventory = safety stock × (1/2× order size)

The average Dollar value = Unit price × average inventory

Hence, the second statement describing the average inventory is false