Management Notes

# Management Notes

Reference Notes for Management

# Which of the following statements about the basic eoq model is true? | Operations Management Quiz

## Which of the following statements about the basic eoq model is true?

A. If the ordering cost were to double, the EOQ would rise.
B. If annual demand were to double, the EOQ would increase.
C. If the carrying cost were to increase, the EOQ would fall.
D. If annual demand were to double, the number of orders per year would increase.
E. All of the above statements are true.

The Correct Answer for the given question is option E. All of the above statements are true.

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### Economic Order Quantity (EOQ)

EOQ stands for Economic Order Quantity, which refers to a measurement used in the fields of Operations, Logistics, and Supply Management. The objective of EOQ is to determine the number and frequency of orders needed to meet a given level of demand while minimizing the cost per order. Companies use the Economic Order Quantity to reduce the cost of placing orders for inventory and storing it. Ordering inventory costs decrease as volume increases because of economies of scale. EOQ is the exact point at which both of these inversely related costs can be minimized as the inventory size increases.

In the EOQ model, demand is constant and inventory is depleted at a fixed rate until it reaches zero. At that point, a specific number of items comes in to replenish the inventory. Models that assume immediate replenishment do not have inventory shortages or associated costs. Under EOQ, inventory costs are determined by a tradeoff between inventory holding costs (the cost of storing inventory and having it tied up in inventory instead of investing in other opportunities) and order costs. An EOQ model finds the quantity that minimizes the sum of these costs compared to ordering a large number of items at one time, and ordering smaller quantities more frequently. Ordering fewer items more frequently reduces holding costs, while increasing order costs.

Companies benefit from economic order quantities because they can efficiently manage their inventory. As a result of inadequate inventory management techniques, businesses tend to hold too much inventory during times of low demand and too little inventory during times of high demand. Both of these issues result in missed opportunities.

Lastly,

I hope after going through this post you might have clearly understood the Question: Which of the following statements about the basic eoq model is true?

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