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In inventory planning, extra inventory is unnecessarily carried to the end of the planning period when, using one of the following lot size decision policies: 
  • a)
    Lot-for-lot pr oduction  
  • b)
    Economic Order Quantity (EOQ) lot size  
  • c)
    Period Order Quantity (POQ) lot size  
  • d)
    Part Period total cost balancing
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
In inventory planning, extra inventory is unnecessarily carried to the...
Explanation:

In inventory planning, the lot size decision policies determine the quantity of inventory to be ordered or produced at a given time. These policies aim to strike a balance between minimizing inventory holding costs and minimizing ordering/setup costs.

Lot-for-lot production:
- The lot-for-lot production policy involves producing or ordering exactly the required quantity to meet the demand.
- This policy eliminates the risk of carrying extra inventory at the end of the planning period.
- However, it may result in frequent setups or orders, leading to higher ordering/setup costs.

Economic Order Quantity (EOQ) lot size:
- The Economic Order Quantity (EOQ) lot size policy calculates the optimal order quantity that minimizes the total cost of inventory.
- It takes into account both inventory holding costs and ordering/setup costs.
- EOQ considers the trade-off between carrying extra inventory and incurring additional ordering/setup costs.
- The optimal order quantity is determined using the EOQ formula: EOQ = sqrt((2 * D * S) / H), where D is the annual demand, S is the ordering/setup cost per order, and H is the annual holding cost per unit.
- EOQ lot sizes are typically larger than the immediate demand, resulting in carrying extra inventory to the end of the planning period.

Period Order Quantity (POQ) lot size:
- The Period Order Quantity (POQ) lot size policy involves ordering or producing a fixed quantity at regular intervals.
- The order quantity is determined based on the forecasted demand for the planning period.
- POQ aims to balance the trade-off between carrying excess inventory and incurring ordering/setup costs.
- The fixed order quantity may result in carrying extra inventory to the end of the planning period.

Part Period Total Cost Balancing:
- Part Period Total Cost Balancing is a lot sizing technique that aims to minimize the total cost of inventory for a given planning period.
- It considers both inventory holding costs and ordering/setup costs.
- The technique involves determining the optimal lot size by comparing the costs of carrying extra inventory and ordering/setup costs.
- The optimal lot size may result in carrying extra inventory to the end of the planning period.

Conclusion:
- Among the given lot size decision policies, the Economic Order Quantity (EOQ) lot size policy is the one that results in extra inventory being carried to the end of the planning period.
- This is because the EOQ lot size considers the trade-off between inventory holding costs and ordering/setup costs, often resulting in larger order quantities than the immediate demand.
- Carrying extra inventory at the end of the planning period can lead to increased holding costs, but it helps minimize ordering/setup costs.
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In inventory planning, extra inventory is unnecessarily carried to the end of the planning period when, using one of the following lot size decision policies:a)Lot-for-lot pr oduction b)Economic Order Quantity (EOQ) lot size c)Period Order Quantity (POQ) lot size d)Part Period total cost balancingCorrect answer is option 'B'. Can you explain this answer?
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