Economic order quantity (EOQ )MCQs in Supply Chain

1. What is the primary purpose of the Economic Order Quantity (EOQ) model?

A. To determine the optimal order quantity that minimizes the total inventory costs
B. To maximize the sales revenue
C. To reduce the lead time for order deliveries
D. To increase the market share

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

2. Which of the following costs are considered in the EOQ model?

A. Purchase cost and setup cost
B. Holding cost and ordering cost
C. Stockout cost and backorder cost
D. Transportation cost and labor cost

Answer: B. Holding cost and ordering cost

3. The formula for EOQ is given by:

$\sqrt{\frac{2DS}{H}}$ In this formula, what does “S” represent? A. Sales volume
B. Setup cost
C. Stockout cost
D. Ordering cost per order

Answer: D. Ordering cost per order

4. If the annual demand (D) is 10,000 units, the ordering cost (S) is $50 per order, and the holding cost (H) is $2 per unit per year, what is the EOQ?

A. 500 units
B. 1000 units
C. 250 units
D. 100 units

Answer: C. 500 units

Explanation: $\sqrt{\frac{2DS}{H}}$ $\sqrt{\frac{2 \times 10,000 \times 50}{2}} = \sqrt{500,000} = 500$

5. Which of the following is NOT an assumption of the EOQ model?

A. Constant demand rate
B. Instantaneous replenishment
C. Variable lead time
D. Constant holding cost

Answer: C. Variable lead time

6. What happens to the EOQ if the ordering cost increases?

A. EOQ increases
B. EOQ decreases
C. EOQ remains the same
D. EOQ becomes zero

Answer: A. EOQ increases

Explanation: Since the ordering cost (S) is in the numerator of the EOQ formula, an increase in S will result in a higher EOQ.

7. The total cost at EOQ consists of which components?

A. Ordering cost and stockout cost
B. Holding cost and transportation cost
C. Holding cost and ordering cost
D. Purchase cost and labor cost

Answer: C. Holding cost and ordering cost

8. If the holding cost per unit per year doubles, how does this affect the EOQ?

A. EOQ doubles
B. EOQ halves
C. EOQ increases by a factor of $2\sqrt{2}$
D. EOQ decreases by a factor of $2\sqrt{2}$

Answer: D. EOQ decreases by a factor of $2\sqrt{2}$

Explanation: $\sqrt{\frac{2DS}{H}}$ If H doubles, EOQ becomes: $EOQnew=2DS2H=12×EOQEOQ_{new} = \sqrt{\frac{2DS}{2H}} = \frac{1}{\sqrt{2}} \times EOQ$

9. In the EOQ model, what is the impact of increasing the annual demand (D) on the EOQ?

A. EOQ increases
B. EOQ decreases
C. EOQ remains the same
D. EOQ decreases to zero

Answer: A. EOQ increases

Explanation: Since D is in the numerator of the EOQ formula, an increase in D will result in a higher EOQ.

10. What is the relationship between EOQ and the total cost of inventory management?

A. At EOQ, the total cost is minimized
B. At EOQ, the total cost is maximized
C. At EOQ, the total cost is irrelevant
D. EOQ does not affect the total cost

Answer: A. At EOQ, the total cost is minimized