When using the economic order quantity model:
A) ordering costs increase as the level of inventory increases.
B) carrying costs decrease as the level of inventory increases.
C) costs are minimized when total carrying costs and total ordering costs are equal.
D) discounted prices are calculated.

Question

Quizplus · Accepted Answer

The economic order quantity model is designed to minimize the total cost of inventory management by balancing two costs: carrying costs and ordering costs. When the carrying costs are high, it is optimal to order fewer quantities more frequently, but when the ordering costs are high, ordering larger quantities less frequently would be a better option. At the point where total carrying costs and total ordering costs are equal, the cost is minimized, which is the optimal order size.

When Using the Economic Order Quantity Model