[amp_mcq option1=”Total Ordering Cost” option2=”Total Inventory Cost” option3=”Total Interest Cost” option4=”Safety Stock Level” correct=”option1″]<\/p>\n
The correct answer is: A. Total Ordering Cost.<\/p>\n
Economic order quantity (EOQ) is the optimal quantity of goods to order at a time in order to minimize total inventory costs. It is calculated by taking into account the ordering cost, carrying cost, and unit cost of the goods.<\/p>\n
The ordering cost is the cost of placing an order, such as the cost of the order form, the cost of shipping the goods, and the cost of the employee’s time to place the order. The carrying cost is the cost of holding inventory, such as the cost of storage space, the cost of insurance, and the cost of obsolescence. The unit cost of the goods is the cost of each item in the order.<\/p>\n
The EOQ is calculated using the following formula:<\/p>\n
EOQ = \u00e2\u0088\u009a(2D<\/em>C)\/H<\/p>\n where:<\/p>\n D = annual demand The EOQ minimizes the total inventory cost, which is the sum of the ordering cost and the carrying cost. The total inventory cost is calculated using the following formula:<\/p>\n Total Inventory Cost = DC\/Q + Q<\/em>H\/2<\/p>\n where:<\/p>\n D = annual demand The EOQ is a useful tool for businesses to minimize their inventory costs. By calculating the EOQ, businesses can order the optimal quantity of goods at a time to minimize their total inventory costs.<\/p>\n The other options are incorrect because they do not represent the total inventory cost. Option B, total ordering cost, is only one component of the total inventory cost. Option C, total interest cost, is not a component of the total inventory cost. Option D, safety stock level, is the amount of inventory that is kept on hand to protect against unexpected demand or delays in delivery.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”Total Ordering Cost” option2=”Total Inventory Cost” option3=”Total Interest Cost” option4=”Safety Stock Level” correct=”option1″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-46548","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n
\nC = ordering cost per order
\nH = carrying cost per unit per year<\/p>\n
\nC = ordering cost per order
\nQ = EOQ
\nH = carrying cost per unit per year<\/p>\n