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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 rise.
- c)If the carrying cost were to increase, the EOQ would fall.
- d)All of the above statements are true.
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Which of the following statements about the basic EOQ model is true?a)...
Explanation:
The Economic Order Quantity (EOQ) model is a widely used inventory management technique that helps organizations determine the optimal order quantity to minimize costs. The model assumes that demand is constant and known, and that there are no quantity discounts or stockouts.
Statement a: If the ordering cost were to double, the EOQ would rise.
- The ordering cost is the cost associated with placing an order for inventory. It includes costs such as paperwork, processing, and transportation.
- In the EOQ model, the ordering cost is inversely proportional to the order quantity. As the ordering cost increases, it becomes more expensive to place orders, and organizations tend to order larger quantities less frequently to minimize the impact of ordering costs on the total inventory cost.
- Therefore, if the ordering cost were to double, the EOQ would indeed rise. This is because a higher ordering cost would incentivize organizations to order larger quantities less frequently.
Statement b: If annual demand were to double, the EOQ would rise.
- The annual demand is the total quantity of inventory required by the organization over a given period.
- In the EOQ model, the EOQ is directly proportional to the square root of the annual demand. As the annual demand increases, the EOQ also increases.
- Therefore, if the annual demand were to double, the EOQ would indeed rise.
Statement c: If the carrying cost were to increase, the EOQ would fall.
- The carrying cost is the cost associated with holding inventory in stock. It includes costs such as storage, handling, insurance, and obsolescence.
- In the EOQ model, the carrying cost is directly proportional to the order quantity. As the carrying cost increases, it becomes more expensive to hold inventory in stock, and organizations tend to order smaller quantities more frequently to minimize the impact of carrying costs on the total inventory cost.
- Therefore, if the carrying cost were to increase, the EOQ would indeed fall. This is because a higher carrying cost would incentivize organizations to order smaller quantities more frequently.
Conclusion:
All three statements are true:
a) If the ordering cost were to double, the EOQ would rise.
b) If annual demand were to double, the EOQ would rise.
c) If the carrying cost were to increase, the EOQ would fall.
The Economic Order Quantity (EOQ) model is a widely used inventory management technique that helps organizations determine the optimal order quantity to minimize costs. The model assumes that demand is constant and known, and that there are no quantity discounts or stockouts.
Statement a: If the ordering cost were to double, the EOQ would rise.
- The ordering cost is the cost associated with placing an order for inventory. It includes costs such as paperwork, processing, and transportation.
- In the EOQ model, the ordering cost is inversely proportional to the order quantity. As the ordering cost increases, it becomes more expensive to place orders, and organizations tend to order larger quantities less frequently to minimize the impact of ordering costs on the total inventory cost.
- Therefore, if the ordering cost were to double, the EOQ would indeed rise. This is because a higher ordering cost would incentivize organizations to order larger quantities less frequently.
Statement b: If annual demand were to double, the EOQ would rise.
- The annual demand is the total quantity of inventory required by the organization over a given period.
- In the EOQ model, the EOQ is directly proportional to the square root of the annual demand. As the annual demand increases, the EOQ also increases.
- Therefore, if the annual demand were to double, the EOQ would indeed rise.
Statement c: If the carrying cost were to increase, the EOQ would fall.
- The carrying cost is the cost associated with holding inventory in stock. It includes costs such as storage, handling, insurance, and obsolescence.
- In the EOQ model, the carrying cost is directly proportional to the order quantity. As the carrying cost increases, it becomes more expensive to hold inventory in stock, and organizations tend to order smaller quantities more frequently to minimize the impact of carrying costs on the total inventory cost.
- Therefore, if the carrying cost were to increase, the EOQ would indeed fall. This is because a higher carrying cost would incentivize organizations to order smaller quantities more frequently.
Conclusion:
All three statements are true:
a) If the ordering cost were to double, the EOQ would rise.
b) If annual demand were to double, the EOQ would rise.
c) If the carrying cost were to increase, the EOQ would fall.
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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 rise.c)If the carrying cost were to increase, the EOQ would fall.d)All of the above statements are true.Correct answer is option 'D'. Can you explain this answer?
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