Question

In a basic EOQ model, if the fixed ordering cost F increases, then the optimal time

between orders, T, will increase.

A) True

B) False

Answer 1

Question: In a basic EOQ model, if the fixed ordering cost F increases, then the optimal time between orders, T, will increase.

Answer: True

Explanation: According to Economic Order Quantity (EOQ) formula:

EOQ = ( 2 × D × F / H ) ^½

Where: D = Demand, F = Order Cost, H = Holding Cost

Here: If the Order Cost (F) increases, then the corresponding EOQ value will also increase.

Now: Optimal time between orders (T) = Number of total working days (Td) / Number of orders placed per year (N)

Which is: T = Td / N

Here: N = D / Q = Demand / EOQ

Hence: If the Order Cost increases, then the optimal time between orders T will also increase with respect to EOQ value.

Example:

Let us assume imaginary numbers:

If, D = 20, F = 10, H = 0.5

EOQ = 28.284; T = 516.2

If, D = 20, F = 20, H = 0.5

EOQ = 40; T = 730

Hence, it is clearly evident that, if the Order Cost increases, then the optimal time between orders T will also increase with respect to EOQ value.