Economic Order Quantity (EOQ) minimises the total of which two costs?
AFixed cost and variable cost
BMaterial cost and labour cost
CCarrying cost and ordering cost
DDirect cost and indirect cost
Answer & Solution
Correct answer: C. Carrying cost and ordering cost
1. EOQ model balances the cost of holding inventory against the cost of placing orders.
2. Lowering the order size reduces carrying cost but increases ordering cost; raising it does the reverse.
3. EOQ is the order size at which total of carrying + ordering cost is minimum.
4. Hence the two costs minimised together are carrying cost and ordering cost.
_Source: ICAI BoS Inter Paper 3, Ch 2 "Material Cost", §2.5 ¶2_
Related questions
Annual usage 5,000 units; ordering cost ₹40; carrying cost 20 percent of price ₹20. OptimaMaximum stock level formula is:EOQ when discount is offered changes when:Abnormal loss in material processing is:Stores ledger records material movements in:VED analysis classifies stores items based on:Carrying cost ₹6/unit, ordering cost ₹120/order, annual demand 18,000 units. EOQ equals:Weighted average price after receipts of 100 units at ₹10 and 200 units at ₹13 is: