In determining the economic order quantity (EOQ) the following costs are considered:
A) costs of a stockout and ordering costs
B) costs of a stockout and inventory holding costs
C) ordering costs and inventory carrying costs
D) ordering costs and costs of changing production levels
E) inventory holding costs and costs of changing production levels

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) formula takes into account the tradeoff between ordering costs and inventory carrying costs. Ordering costs include the costs of preparing and transmitting orders, while inventory carrying costs include storage, insurance, and handling costs. The EOQ model assumes that demand is constant and that orders arrive all at once when inventory is depleted. Therefore, costs of a stockout and costs of changing production levels are not considered in the EOQ formula.

In Determining the Economic Order Quantity (EOQ) the Following Costs