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) None of the options are true.

Question

Quizplus · Accepted Answer

The economic order quantity model aims to minimize the total cost of inventory, which includes carrying costs (the cost of holding inventory) and ordering costs (the cost of placing an order). The optimal order quantity occurs where the total carrying costs and total ordering costs are equal, resulting in the lowest total cost. Therefore, choice C is true. Choices A and B are incorrect because ordering costs and carrying costs do not necessarily increase or decrease as the level of inventory changes. Choice D is incorrect because one of the options is true.

When Using the Economic Order Quantity Model