Question

The EOQ model

A) determines only how frequently to order.
B) considers total cost.
C) minimizes both ordering and holding costs.
D) all of the alternatives are correct.

Answer 1

B) considers total cost.

Explanation:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.

The formula for EOQ is:

Q= √2DS/H

Q=EOQ units

D=Demand in units (typically on an annual basis)

S=Order cost (per purchase order)

H=Holding costs (per unit, per year)

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