If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $50,000 this scenario would reveal that:
A) Your order size was lower than the EOQ
B) Your order lot size was equal to the EOQ
C) Your order lot size was higher than the EOQ
D) Nothing because there is insufficient information to discern where the EOQ would be.

Question

Quizplus · Accepted Answer

Without knowing the specific numbers and variables used to calculate the EOQ, we can only determine whether the order lot size is higher or lower than the EOQ based on the annual costs. If the annual purchase cost is high, the EOQ will tend to be higher. The same goes for high holding costs. On the other hand, high ordering costs tend to drive the EOQ down. Since the annual ordering cost in this scenario is relatively low, it is likely that the order lot size is higher than the EOQ.

If Your Company Had an Annual Purchase Cost of Items