Economic Order Quantity (EOQ): A Comprehensive Guide for Inventory Optimization

Question 1

What is the primary purpose of the EOQ model in inventory management?

Accepted Answer

To determine the optimal order quantity that minimizes total inventory costs.

Answer

To forecast future demand for inventory items.

Answer

To calculate the reorder point for inventory items.

Answer

To determine the optimal safety stock level for inventory items.

Question 2

Which of the following factors is NOT considered when calculating the Economic Order Quantity (EOQ)?

Accepted Answer

Shipping costs

Answer

Demand

Answer

Ordering costs

Answer

Holding costs

Question 3

How does increasing demand impact the EOQ?

Accepted Answer

EOQ increases

Answer

EOQ decreases

Answer

EOQ remains the same

Answer

The impact depends on other factors

Question 4

What is the primary purpose of the EOQ model?

Accepted Answer

To determine the optimal order quantity that minimizes total inventory costs

Answer

To maximize inventory levels

Answer

To ensure sufficient stock to meet customer demand

Answer

To simplify the inventory management process

Question 5

What is the fundamental goal of Economic Order Quantity (EOQ)?

Accepted Answer

Minimize total inventory costs, including holding and ordering costs

Answer

Maximize inventory turnover rate

Answer

Reduce customer lead times

Answer

Enhance customer satisfaction

Question 6

Which of the following factors is excluded from the Economic Order Quantity (EOQ) calculation?

Accepted Answer

Production lead time

Answer

Annual demand

Answer

Holding cost per unit

Answer

Ordering cost per order

Question 7

What is the primary limitation of the Economic Order Quantity (EOQ) model?

Accepted Answer

Assumes demand remains constant

Answer

Does not consider safety stock levels

Answer

Can be complex to apply in practice

Question 8

Which inventory management approach is most suitable for high-demand items with low holding costs?

Accepted Answer

Economic Order Quantity (EOQ)

Answer

Periodic review system

Answer

Just-in-time inventory

Answer

Consignment inventory

Question 9

How does Economic Order Quantity (EOQ) contribute to reducing the risk of stockouts?

Accepted Answer

Ensuring sufficient inventory levels are maintained

Answer

Increasing the frequency of orders

Answer

Reducing the lead time for orders

Question 10

Differentiate between Economic Order Quantity (EOQ) and reorder point.

Accepted Answer

EOQ is the optimal quantity to order, while reorder point triggers the placement of an order

Answer

Reorder point is the optimal quantity to order, while EOQ triggers the placement of an order

Answer

They are the same concept

Answer

EOQ is used in periodic review systems, while reorder point is used in continuous review systems

Question 11

True or False: Economic Order Quantity (EOQ) should be recalculated whenever demand, holding costs, or ordering costs change.

Accepted Answer

True

Answer

False

Question 12

The formula for calculating the EOQ is:

Accepted Answer

EOQ = sqrt((2 * D * O) / H)

Answer

EOQ = D / (O + H)

Answer

EOQ = (D * H) / O

Answer

EOQ = sqrt((D * O) / (2 * H))

Question 13

Which scenario would **not** result in an increase in the optimal order quantity (EOQ)?

Accepted Answer

No change in any of the relevant factors

Answer

An increase in demand rate

Answer

A decrease in holding costs

Answer

An increase in ordering costs

Question 14

The primary goal of implementing an EOQ system is to:

Accepted Answer

Minimize total inventory costs

Answer

Reduce lead times

Answer

Improve customer service levels

Answer

Increase inventory turnover

Question 15

How does the EOQ model account for situations where demand is not constant?

Accepted Answer

The EOQ model uses a weighted average demand rate based on historical data to account for demand variability.

Answer

The EOQ model assumes a constant demand rate and cannot be used in situations with variable demand.

Answer

The EOQ model requires the demand to follow a specific pattern, and if the pattern changes, the model becomes invalid.

Answer

The EOQ model is not applicable in situations with variable demand and should not be used in such cases.

Question 16

What is the primary goal of using the EOQ model?

Accepted Answer

To minimize total inventory costs

Answer

To maximize customer satisfaction

Answer

To ensure continuous availability of inventory

Answer

To improve production efficiency

Question 17

How does increasing holding costs impact the EOQ?

Accepted Answer

EOQ will decrease

Answer

EOQ will increase

Answer

EOQ will remain the same

Answer

EOQ cannot be determined

Question 18

Which of the following is **NOT** a step involved in calculating the EOQ?

Accepted Answer

Calculate lead time

Answer

Calculate annual demand

Answer

Estimate ordering cost

Answer

Determine holding cost

Question 19

What is the main reason for using safety stock when calculating the Economic Order Quantity (EOQ)?

Accepted Answer

To avoid running out of inventory during periods of high demand.

Answer

To decrease the number of orders placed.

Answer

To lower overall inventory costs.

Answer

To enhance customer satisfaction.

Question 20

How do quantity discounts affect the calculation of the Economic Order Quantity (EOQ)?

Accepted Answer

Quantity discounts lower the average unit cost, resulting in a smaller EOQ.

Answer

Quantity discounts have no effect on EOQ calculations.

Answer

Quantity discounts increase the total inventory cost, leading to a larger EOQ.

Answer

Quantity discounts are only relevant for large businesses.

Question 21

Which of the following are **key assumptions** of the EOQ model?

Accepted Answer

Demand is constant and predictable

Accepted Answer

Holding costs are constant per unit ordered

Answer

Lead time is negligible

Question 22

The EOQ represents the optimal order quantity that:

Accepted Answer

Minimizes total inventory costs

Answer

Maximizes inventory turnover

Answer

Keeps inventory levels constant

Answer

Reduces lead time

Question 23

Which factor does NOT influence the EOQ calculation?

Accepted Answer

Safety stock levels

Answer

Ordering costs

Answer

Demand

Answer

Holding costs

Question 24

Which assumption is NOT made in the EOQ model?

Accepted Answer

Demand is deterministic

Answer

Ordering costs occur only when an order is placed

Answer

Holding costs are consistent for each unit of inventory

Answer

Lead time is constant

Question 25

Which inventory management technique aims to minimize total inventory costs, including holding and ordering expenses?

Accepted Answer

EOQ

Answer

ROP (Reorder Point)

Answer

JIT (Just-in-Time)

Answer

ABC Analysis

Question 26

A benefit of using the EOQ model is:

Accepted Answer

Reduced inventory costs

Answer

Increased customer satisfaction

Answer

Improved cash flow

Answer

Enhanced forecasting accuracy

Question 27

To account for variable lead time in the EOQ model, one can:

Accepted Answer

Incorporate a safety lead time

Answer

Reduce ordering costs

Answer

Ignore lead time variability

Answer

Increase holding costs

Question 28

What is the primary objective of using Economic Order Quantity (EOQ)?

Accepted Answer

To determine the optimal order size that minimizes the total inventory costs, including holding costs and ordering costs.

Answer

To ensure that demand is always met

Question 29

Which of the following factors is NOT taken into account when calculating EOQ?

Accepted Answer

Production capacity

Answer

Demand

Answer

Holding costs

Question 30

What would be the effect on total inventory costs if the ordering cost were halved?

Accepted Answer

Total inventory costs would decrease.

Answer

EOQ would increase.

Answer

Total inventory costs would remain the same.

Answer

Total inventory costs would increase.

Question 31

Which of the following assumptions underlies the EOQ model?

Accepted Answer

Demand is constant over time.

Answer

Ordering costs are variable.

Answer

Holding costs are negligible.

Answer

Lead time is zero.

Question 32

In the context of EOQ, what is the term for the cost associated with storing inventory?

Accepted Answer

Holding cost

Answer

Procurement cost

Answer

Storage cost

Answer

Ordering cost

Question 33

Which technique can be used to adjust EOQ for situations with fluctuating demand?

Accepted Answer

Safety stock

Answer

Consignment inventory

Answer

Vendor-managed inventory

Answer

Just-in-time inventory

Question 34

What is the fundamental objective of the Economic Order Quantity (EOQ) model?

Accepted Answer

Minimize total inventory costs over time

Answer

Reduce lead times and delays

Answer

Maximize storage space utilization

Answer

Ensure continuous product availability

Question 35

Which of the following factors is NOT directly considered in the calculation of EOQ?

Accepted Answer

Transportation costs incurred during delivery

Answer

Cost of placing an order

Answer

Demand for the product

Answer

Cost of holding inventory

Question 36

How does an increase in demand affect the Economic Order Quantity (EOQ)?

Accepted Answer

Increases the EOQ

Answer

Reduces inventory holding costs

Answer

Decreases the EOQ

Answer

Remains unchanged

Question 37

What is a primary advantage of utilizing the EOQ model?

Accepted Answer

Optimization of total inventory costs

Answer

Elimination of stockouts

Answer

Guaranteed customer satisfaction

Answer

Reduction in overall lead times

Question 38

Which of the following is a potential limitation of the EOQ model in practice?

Accepted Answer

Difficulty in accurately forecasting demand

Answer

Simple and straightforward implementation

Answer

Applicability to a wide range of inventory scenarios

Answer

Ability to incorporate quantity discounts

Question 39

How can companies enhance the EOQ model to better suit their specific operational needs?

Accepted Answer

Incorporate quantity discounts, safety stock, and seasonal demand patterns

Answer

Use the EOQ formula without any adjustments

Answer

Ignore holding costs to simplify calculations

Question 40

Which of the following is NOT a component of the Economic Order Quantity (EOQ) formula?

Accepted Answer

Lead time

Answer

Demand

Answer

Holding cost

Answer

Ordering cost

Question 41

What is the primary purpose of safety stock in inventory management?

Accepted Answer

To buffer against demand variability and lead time uncertainty

Answer

To increase inventory turnover

Answer

To reduce ordering costs

Question 42

What is the relationship between safety stock and inventory carrying costs?

Accepted Answer

Increasing safety stock increases carrying costs

Answer

Safety stock has no impact on carrying costs

Answer

Cannot be determined

Answer

Increasing safety stock decreases carrying costs

Question 43

Which of the following is a fundamental assumption of the EOQ model?

Accepted Answer

Demand is known and constant

Answer

Lead time is variable

Answer

Ordering cost is zero

Answer

Inventory holding cost is negligible

Question 44

What is the impact of an increase in lead time on the EOQ?

Accepted Answer

EOQ increases

Answer

EOQ decreases

Answer

EOQ remains unchanged

Answer

Cannot be determined

Question 45

Which of the following factors is NOT directly considered in the calculation of EOQ?

Accepted Answer

Lead time

Answer

Holding cost

Answer

Annual demand

Answer

Ordering cost

Question 46

If the holding cost per unit increases, what happens to the EOQ?

Accepted Answer

Decreases

Answer

Stays the same

Answer

Increases

Answer

Fluctuates unpredictably

Question 47

A company's EOQ is 1,000 units. If the company orders 500 units at a time, what is the impact on total inventory costs?

Accepted Answer

Total inventory costs will increase

Answer

Total inventory costs will remain the same

Answer

There is no impact on total inventory costs

Answer

Total inventory costs will decrease

Question 48

Which of the following is a benefit of using the EOQ model?

Accepted Answer

Minimizes total inventory costs

Answer

Predicts future demand accurately

Answer

Reduces lead time to zero

Answer

Eliminates stockouts completely

Question 49

The EOQ model assumes that demand is:

Accepted Answer

Constant and known

Answer

Trendy and unpredictable

Answer

Seasonal and predictable

Answer

Variable and unknown

Question 50

A company using the EOQ model experiences a sudden increase in demand. What is the most likely impact on the EOQ?

Accepted Answer

The EOQ will increase

Answer

The EOQ will decrease

Answer

The EOQ will remain the same

Answer

The impact on the EOQ cannot be determined

Question 51

A company is considering implementing the EOQ model. What should the company do before implementing the model?

Accepted Answer

Accurately estimate demand, ordering costs, and holding costs

Answer

Negotiate discounts with suppliers

Answer

Invest in a new inventory management system

Question 52

A company uses the EOQ model but finds that its actual demand is consistently higher than expected. What should the company do?

Accepted Answer

Re-evaluate demand forecasts and adjust the EOQ accordingly

Answer

Ignore the discrepancy and continue using the existing EOQ

Answer

Increase the ordering cost to discourage frequent orders