A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model. What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in inventory?
A、EOQ Total annual ordering cost Lower Higher
B、EOQ Total annual ordering cost Higher Lower
C、EOQ Total annual ordering cost Lower No effect
D、EOQ Total annual ordering cost Higher No effect
A、EOQ Total annual ordering cost Lower Higher
B、EOQ Total annual ordering cost Higher Lower
C、EOQ Total annual ordering cost Lower No effect
D、EOQ Total annual ordering cost Higher No effect
【参考答案及解析】
The formula for the EOQ has the holding cost as the denominator. If this increases, the EOQ will be lower. A lower EOQ means that more orders will have to be placed each year; therefore, the total annual ordering cost will increase.
The formula for the EOQ has the holding cost as the denominator. If this increases, the EOQ will be lower. A lower EOQ means that more orders will have to be placed each year; therefore, the total annual ordering cost will increase.