EBQ study hub practice question

Alpha Co buys material X from a supplier that is located next to its factory. When Alpha places an order for material X, the supplier sets up a special production run, and it can take several days for the order to be fulfilled. The supplier delivers material X to Alpha Co in small batches from the time the order is placed until the order is complete.

Alpha currently uses the economic order quantity model to determine the order quantity of material X, but a new management accountant has suggested that the economic batch quantity model (EBQ) would be more appropriate. This would have no effect on the total quantity of material X used during the year.

10. What would be the effect of adopting the EBQ model?

Order quantity Number of orders per year
Decrease Increase
Decrease Decrease
Increase Decrease
A. Increase Increase
The correct answer is C.

The order quantity increases when the EBQ is used instead of the EOQ. If inventory is replaced gradually, average inventory holdings will be lower than if inventory were replaced instantaneously, and therefore total inventory holding costs fall. The EBQ takes this into account and therefore increases the order quantity.

If the quantity ordered rises each time an order is placed, then a lower frequency of orders will be required.

Can you please explain how they have found the answer? I’m not able to understand the explanation which they have given