The correct answer is: C. Total Inventory Cost is minimum.
Economic order quantity (EOQ) is the order quantity that minimizes the total inventory cost. It is calculated by taking into account the ordering cost, carrying cost, and unit cost of the item.
The ordering cost is the cost of placing an order, such as the cost of the purchase order itself and the cost of the time spent by the purchasing staff to process the order. The carrying cost is the cost of holding inventory, such as the cost of the warehouse space, the cost of insurance, and the cost of obsolescence. The unit cost is the cost of one unit of the item.
The EOQ is calculated as follows:
EOQ = â(2 * D * C) / H
Where:
D = annual demand
C = ordering cost per order
H = carrying cost per unit per year
The EOQ can be used to determine the optimal order quantity for a given product. By ordering the optimal quantity, businesses can save money on inventory costs.
Option A is incorrect because the total order cost is not always minimized when the EOQ is used. The total order cost depends on the ordering cost, the carrying cost, and the unit cost of the item. The EOQ only minimizes the total inventory cost.
Option B is incorrect because the total number of orders is not always minimized when the EOQ is used. The total number of orders depends on the demand for the product, the lead time, and the EOQ. The EOQ only minimizes the total inventory cost.
Option D is incorrect because the EOQ does determine the order size when the total inventory cost is minimum.