In the basic EOQ model,annual setup cost is equal to:
A)the EOQ multiplied by setup cost
B)the EOQ divided by setup cost
C)setup cost multiplied by the ratio of the annual demand to the EOQ
D)setup cost multiplied by the ratio of the EOQ to annual demand
E)setup cost multiplied by annual demand

Question

In the basic EOQ model,annual setup cost is equal to:
A)the EOQ multiplied by setup cost 
B)the EOQ divided by setup cost 
C)setup cost multiplied by the ratio of the annual demand to the EOQ 
D)setup cost multiplied by the ratio of the EOQ to annual demand 
E)setup cost multiplied by annual demand

Quizplus · Accepted Answer

The annual setup cost is the product of the number of setups per year and the cost of each setup. As the EOQ formula gives the optimal order quantity that minimizes total inventory costs, the number of setups per year will be the ratio of annual demand to EOQ. Therefore, the annual setup cost will be setup cost multiplied by the ratio of the annual demand to the EOQ.

In the Basic EOQ Model,annual Setup Cost Is Equal To