Question

The two most basic inventory questions answered by the typical inventory model are:

• A) timing of orders and cost of orders.
• B) order quantity and cost of orders.
• C) timing of orders and order quantity.
• D) order quantity and service level.
• E) ordering cost and carrying cost.

 

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. Reorder point is the level of inventory which the firm holds in stock and when the inventory level reach this point, the firm must reorder the item.

EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. Thus EOQ helps in calculating reorder point and optimal reorder quantity to avoid shortage of inventory.

 

The correct answer is option C) timing of orders and order quantity.