ECONOMICS

Detailed explanation-1: -c) Except for rounding, annual ordering and carrying costs are ALWAYS equal at the EOQ.

Detailed explanation-2: -Ordering costs are costs that are incurred to obtain additional inventories, whereas carrying costs are the costs incurred to hold inventory on hand. The total inventory cost is the ordering cost plus the carrying cost.

Detailed explanation-3: -Also referred to as ‘optimum lot size, ’ the economic order quantity, or EOQ, is a calculation designed to find the optimal order quantity for businesses to minimize logistics costs, warehousing space, stockouts, and overstock costs. The formula is: EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.

Detailed explanation-4: -Which of the following statements concerning the basic EOQ model is true? If an actual order quantity is smaller than-the EOQ, the annual holding cost is less than the annual ordering cost. An increase in holding cost will increase the EOQ value.