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

Question

Quizplus · Accepted Answer

The economic order quantity model is designed to minimize the total cost of inventory management, which includes both ordering costs and carrying costs. The optimal order quantity occurs where the total holding cost is equal to the total ordering cost. Therefore, the correct answer is C: costs are minimized when total carrying costs and total ordering costs are equal. Choice A is incorrect because ordering costs actually decrease as the level of inventory increases, since fewer orders are needed. Choice B is incorrect because carrying costs increase as the level of inventory increases, due to increased storage and handling costs.

When Using the Economic Order Quantity Model