Which of the following does the basic Economic Order Quantity (EOQ) model help inventory managers accomplish?

• A. Forecast future demand for products
• B. Calculate the break-even point for production
• C. Set the selling price for inventory items
• D. Determine the optimal order quantity that minimizes total inventory costs

Answer: (D)

Verified step by step guidance

1. Understand the purpose of the Economic Order Quantity (EOQ) model: it is designed to help inventory managers find the optimal order size that minimizes the total cost associated with inventory.
2. Recall that the total inventory cost consists mainly of two components: ordering costs (costs incurred every time an order is placed) and holding costs (costs of storing inventory over time).
3. Recognize that the EOQ model balances these two costs by determining the order quantity where the sum of ordering and holding costs is minimized.
4. Note that EOQ does not forecast future demand, calculate break-even points, or set selling prices; instead, it focuses specifically on optimizing order quantity to reduce costs.
5. Therefore, the EOQ model helps inventory managers determine the optimal order quantity that minimizes total inventory costs.