Question

An increase in which variable will cause the economic ordering quantity to rise?

Select one:

a. carrying cost

b. current level of inventory

c. product demand (sales)

d. purchase price

Answer 1

Option C product demand (sales)is the right answer

An increase in product demand variable will cause the economic ordering quantity to rise. Economic order quantity is the number of units that a company should add to inventory with each order to minimize the total costs of inventory. Which include shortage costs, order costs and holding costs, it helps a company to maintain a consistent inventory level and to reduce costs. Economic order quantity assumes that demand is constant, and that inventory is depleted at a fixed rate until it reaches zero. Economic order quantity will increase when the annual demand(sales) and the cost of ordering of raw material or inventory increase and it will decrease as the cost of carrying inventory and the unit cost increase. So, an increase in product demand will cause rise in economic order quantity.