Question

The economic order quantity of a company based on inventory control theory is

• A. Average level of inventory
• B. Optimum lot size is to be maintained
• C. Capacity of warehouse
• D. Lot size corresponding to break even analysis

Hint:

EOQ is the point where the combined costs of holding inventory and ordering items are at their minimum. It helps in optimizing inventory management.

Answer 1

The Correct Option is B

• Economic Order Quantity (EOQ) is a model used to determine the optimal order quantity that minimizes the total cost of inventory, including ordering and holding costs.
• The EOQ is derived from the trade-off between ordering costs and holding costs, and it is the point at which these two costs are minimized.
• The formula for EOQ is:

\[ EOQ = \sqrt{\frac{2DS}{H}} \] where:

• \( D \) = Annual demand,
• \( S \) = Ordering cost per order,
• \( H \) = Holding cost per unit per year.
• The optimal lot size is maintained to ensure the balance between the two costs.