What is the objective of the economic order quantity (EOQ) model for inventory?

Question

What is the objective of the economic order quantity (EOQ) model for inventory? To minimize orde osts or carrying costs, whichever are higher To minimize order costs or carrying costs and maximize the rate of inventory turnover To minimize the total cost order cots and carrying costs over a period of time To order sufficient quantity to economically meet the next period's demand Order cost would include oil of the following except Receiving clerk's wages Storeroom keeper's wages. Purchasing department's telephone bill Transportation in. Expected annual usage of a particular raw material h 1.200,000 units, and standard order sire h 10.000 units. The invoice cost of each unit is $145. and the cost to place one purchase order The estimated annual order cost is $12,000 $17.400. $12.600 $800.000 Carrying costs would include all of the following except Warehouse rent. Inspection employees' wages. Losses doc to obsolescence. Property taxes. The following data refer to various annual costs relating to the inventory of a single-product company that requires 10.000 units per year interest that could have been earned on alternate investment of funds $800 What is the annual carrying cost per unit? $.21 $.29 $.34 $.44

Explanation / Answer

7)

Economic ordering quantity:

= (2×Annual requirement×buying cost per order÷Carrying cost per unit)^(1÷2)

If the company purchases quantity of raw-materials based on the EOQ, its associated costs (ordering cost and carrying costs) will be minimal. It is the best statistical tool available to minimize associated costs.

Hence, correct option is (C)

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