ECONOMICS

Detailed explanation-1: -T/F When using EOQ ordering, the order quantity must be computed in every order cycle. False. Unless demand, holding cost, or ordering cost changing, the order quantity will not change.

Detailed explanation-2: -EOQ does not take inflation into consideration. However, when the inflation is predictable accurately, then the EOQ formula can be modified. If the inflation rate is known, it should be added to the annual carrying cost expressed as a percentage.

Detailed explanation-3: -It is critical that the exact quantity calculated in the EOQ model be ordered. The calculation of safety stock required knowledge of demand and lead time variability. The two basic issues in inventor are how much to order and when to order.

Detailed explanation-4: -What Are the Basic Assumptions of the EOQ Model? EOQ assumes that demand, ordering, and holding costs all remain constant over time.

Detailed explanation-5: -How do you calculate the economic order quantity? To calculate the economic order quantity, you will need the following variables: demand rate, setup costs, and holding costs. The formula is: EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.