Multiple Choice
Which of the following statements is false regarding inventory management?
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5. Inventory
Inventory Errors
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Which of the following statements about the basic Economic Order Quantity (EOQ) model is FALSE?
A
The EOQ model assumes that there are quantity discounts for larger orders.
B
The EOQ model assumes that demand is constant and known.
C
The EOQ model aims to minimize the total ordering and holding costs.
D
The EOQ model assumes that orders are received instantaneously.
Verified step by step guidance1
Understand the Economic Order Quantity (EOQ) model: EOQ is a formula used in inventory management to determine the optimal order quantity that minimizes the total cost of inventory, which includes ordering costs and holding costs.
Review the assumptions of the EOQ model: The EOQ model assumes that demand is constant and known, orders are received instantaneously (no lead time), and there are no quantity discounts for larger orders.
Analyze the statement about quantity discounts: The EOQ model does not account for quantity discounts. It assumes that the cost per unit remains constant regardless of the order size.
Evaluate the statement about minimizing costs: The EOQ model specifically aims to minimize the total ordering and holding costs by finding the balance between these two types of costs.
Compare the statements provided in the problem: Identify which statement contradicts the assumptions of the EOQ model, particularly the one about quantity discounts, as this is not part of the EOQ model's assumptions.
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