The correct answer is D. Optimum order size.
Economic order quantity (EOQ) is the order quantity that minimizes the total inventory costs, including ordering costs and carrying costs. It is calculated by taking into account the following factors:
- The cost of placing an order
- The cost of carrying inventory
- The demand for the product
- The lead time for the product
The EOQ can be calculated using the following formula:
EOQ = â(2DC/h)
where:
D = demand for the product in units per year
C = cost of placing an order
h = holding cost per unit per year
The EOQ is the optimal order size because it minimizes the total inventory costs. By ordering the optimal quantity, businesses can save money on both ordering costs and carrying costs.
Option A, cost of an order, is a component of the total inventory costs. The cost of an order includes the cost of preparing the order, the cost of shipping the order, and the cost of receiving the order.
Option B, cost of stock, is another component of the total inventory costs. The cost of stock includes the cost of the product itself, the cost of storage, and the cost of insurance.
Option C, re-order level, is the level of inventory at which a new order should be placed. The re-order level is determined by the demand for the product, the lead time for the product, and the desired level of customer service.
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