Question

For the EOQ model, which of the following relationships is incorrect?

a. As the order quantity increases, the number of orders placed annually decreases.
b. As the order quantity increases, annual holding cost increases.
c. As the order quantity increases, annual ordering cost increases.
d. As the order quantity increases, average inventory increases.

Answer 1

Answer: As the order quantity increases, annual ordering cost increases

Explanation:

The Economic Order Quantity (EOQ) is simply referred to as the amount of units that should be added by a company to its inventory with each order in order to minimize total inventory costs such as order costs, holding costs, and shortage costs.

The incorrect option is that "as the order quantity increases, annual ordering cost increases". It should be noted that ordering costs are simply the expenses that are incurred in order for an order to be created and processed to a supplier. It should be noted that as the ordering quantity increases, it doesn't mean that the annual ordering costs also increase.