Which of the following statements regarding the Economic Order Quantity (EOQ) mo
ID: 377681 • Letter: W
Question
Which of the following statements regarding the Economic Order Quantity (EOQ) model is true?
It minimizes total inventory cost.
It minimizes the total production costs.
It makes the assumption that the demand rate is unknown.
It applies only to items produced in the firm's own production departments.
It assumes that the lead time is uncertain.
It minimizes total inventory cost.
It minimizes the total production costs.
It makes the assumption that the demand rate is unknown.
It applies only to items produced in the firm's own production departments.
It assumes that the lead time is uncertain.
Explanation / Answer
Correct answer is it minimizes total inventory cost. Economic order quantity is an order quantity which minimizes the total inventory cost which includes the ordering cost and the holding cost. The economic order quantity model assumes that the demand rate is known. It applies to the items that are purchased from outside. It assumes that lead time is certain
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