Which of the following statements is true of the economic order quantity decisio

Question

Which of the following statements is true of the economic order quantity decision model?

It assumes the purchase order lead time is not known with certainty. The larger the order quantity, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs. The economic order quantity increases with higher demand and higher carrying costs and decreases with higher ordering costs. The simple version of the economic order quantity model assumes there are only ordering costs, carrying costs, stockout costs, and purchasing costs.

Explanation / Answer

The Economic Order Quantity decision model is, the Economic Order Quantity increases with higher Demand and higher carrying costs and decreases with higher ordering costs.

The Ordering Cost has an inverse relationship with the carrying cost.

The formula = Square root of ( A * O / C )

where, A = Annual Demand, O = orderding Cost and C = Carrying Cost

Therfore, The Answer is " C "

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