A quantitative model used to determine the most cost-effective inventory order size is called ____________?
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Answer: B. economic order quantity
Explanation
Economic order quantity is a quantitative model determining the cheapest inventory size. It minimizes the combined total of annual ordering costs and carrying costs. Inventories managed through this model optimize cash flow and warehouse storage. The classic EOQ formula balances fixed ordering fees against inventory holding expenses. It assumes constant demand rates, constant ordering costs, and constant holding costs. Firms use this mathematical inventory control tool to prevent stockouts and excess stock.
Wholesale distributors apply economic order quantity to decide how many units to purchase. Retailers use inventory models to minimize the costs of holding unsold seasonal goods. Optimizing order sizes frees up working capital for other corporate investments. Efficient order quantity is a descriptive variant rather than the formal economic term. Rational order quantity is an informal phrase not recognized in inventory management. Optimized order quantity lacks the specific economic balancing formulation of EOQ.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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