BEC – EOQ Question

  • Creator
    Topic
  • #855907
    Ira Gilligan
    Participant

    Can anyone help explain this question to me? The answer given doesn’t make any sense to me.

    When the economic order quantity (EOQ) model is used for a firm which manufactures its inventory, ordering costs consist primarily of:

    A.
    insurance and taxes.

    B.
    obsolescence and deterioration.

    C.
    storage and handling.

    D.
    production setup.

    Answer: D
    The EOQ model formula attempts to minimize costs when faced with the trade-off between the cost to procure and the cost to hold inventory. The formula is the square root of the quotient of two times the annual demand multiplied by the order cost (or setup cost), divided by the annual unit carrying cost.

    EOQ = Square root of (2DS/Ci)
    Where:

    D = Demand per year in units
    S = Production setup or ordering cost per order
    C = Cost per unit
    i = Carrying cost, expressed as a percentage of inventory cost
    (C × i is the carrying cost per unit.)
    Costs to procure inventory are ordering cost for a reseller and production setup costs for a manufacturer.

    AUD - 80
    BEC - 92
    FAR - 92
    REG - 86
    I've made a huge mistake.

    FAR - (scheduled 9/24/16)
    BEC -
    REG -
    AUD -

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