COST ACCOUNTING
INVENTORY AND PRODUCTION MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the quantity ordered can vary at each reorder point
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demand, ordering costs, and carrying costs are uncertain
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the purchasing cost per unit is affected by the order quantity
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no inventory stockouts occur
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Detailed explanation-1: -The EOQ formula assumes that consumer demand is constant. The calculation also assumes that both ordering and holding costs remain constant.
Detailed explanation-2: -The EOQ model assumes that demand is constant, and that inventory is depleted at a fixed rate until it reaches zero. At that point, a specific number of items arrive to return the inventory to its beginning level. Since the model assumes instantaneous replenishment, there are no inventory shortages or associated costs.
Detailed explanation-3: -EOQ always assumes that you pay the same amount per product, every time. There are no chances for stockouts. You have to always maintain enough inventory to avoid stockout costs. This clearly states that you always have to strictly monitor your customer demand along with your inventory levels, carefully.
Detailed explanation-4: -The assumptions behind the economic order quantity (EOQ) model include all of the following EXCEPT: a constant rate of demand.