Question

Which of the following is TRUE regarding the economic order quantity (EOQ) model? A. Demand rate is dependent on order quantity. B. Ordering cost per order is dependent on order quantity. C. Holding cost per unit per year is independent of order quantity. D. Holding cost per unit per year is dependent on the selling price per unit.

Answer 1

Answer:

D. Holding cost per unit per year is dependent on the selling price per unit.

Explanation:

The formulas are shown below:

Economic order quantity:

= $\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

The number of orders would be equal to

= Annual demand ÷ economic order quantity

The average inventory would equal to

= Economic order quantity ÷ 2

The total cost of ordering cost and carrying cost equals to

Ordering cost = Number of orders × ordering cost per order

Carrying cost = average inventory × carrying cost per unit

If in the question, the carrying cost is given in the percentage than the per unit cost is come after multiplying it with the selling price per unit