Arwen Company has correctly computed its economic order quantity at 500 units;however,management feels it would rather order in quantities of 600 units.How should Arwen's total annual order cost and total annual carrying cost for an order quantity of 600 units compare to the respective amounts for an order quantity of 500 units?
A)Higher total order cost and lower total carrying cost
B)Lower total order cost and higher total carrying cost
C)Higher total order cost and higher total carrying cost
D)Lower total order cost and lower total carrying cost

Question

Quizplus · Accepted Answer

Ordering in quantities larger than the economic order quantity (EOQ) results in fewer orders placed per year, which lowers the total annual order cost. However, it also means holding more inventory on average, which increases the total annual carrying cost.

Arwen Company Has Correctly Computed Its Economic Order Quantity at 500