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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?
EOQ Total annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lowersir, what is the answer for this ques . can u plz explain me. i understood of EOQ but not of THC.
If the order cost falls, then the EOQ will fall.
A smaller EOQ will mean that the average inventory will also fall. So the annual holding cost will be lower.
sir, how smaller EOQ means average inventory will fall?? can u plz illustrate
and lower EOQ means higher total annual ordering cost .. how?
Have you watched the free lecture?
The average inventory is always half of the order quantity. So lower order quantity means lower average inventory.
If you order fewer each time then you need to place more orders during the year to get the same total quantity.
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