A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material?
A、EOQ Total annual holding costA Higher Lower
B、EOQ Total annual holding costA Higher Higher
C、EOQ Total annual holding costA Lower Higher
D、EOQ Total annual holding costA Lower Lower
A、EOQ Total annual holding costA Higher Lower
B、EOQ Total annual holding costA Higher Higher
C、EOQ Total annual holding costA Lower Higher
D、EOQ Total annual holding costA Lower Lower
【参考答案及解析】
If there is a decrease in the cost of ordering a batch of raw material, then the EOQ will also be lower (as the numerator in the EOQ equation will be lower). If the EOQ is lower, than average inventory held (EOQ/2) with also be lower and therefore the total annual holding costs will also be lower
If there is a decrease in the cost of ordering a batch of raw material, then the EOQ will also be lower (as the numerator in the EOQ equation will be lower). If the EOQ is lower, than average inventory held (EOQ/2) with also be lower and therefore the total annual holding costs will also be lower