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 other answers are correct

Question

Quizplus · Accepted Answer

The economic order quantity model aims to minimize the total cost of inventory management, which includes both carrying costs (the cost of holding inventory) and ordering costs (the cost of placing an order). In order to minimize the total cost, the inventory level should be set at the point where the total carrying costs and total ordering costs are equal. This is the point where the cost of holding inventory is balanced with the cost of placing orders. Therefore, choice C is the correct answer.

When Using the Economic Order Quantity Model