The primary purpose of the basic economic order quantity model shown below is Q? = $2⋅D⋅SH\sqrt { \frac { 2 \cdot D \cdot S } { H } }$

A) to calculate the reorder point, so that replenishments take place at the proper time.
B) to minimize the sum of carrying cost and holding cost.
C) to maximize the customer service level.
D) to minimize the sum of setup cost and holding cost.
E) to calculate the optimum safety stock.

Question

The primary purpose of the basic economic order quantity model shown below is Q? =

2⋅D⋅SH\sqrt { \frac { 2 \cdot D \cdot S } { H } }

A) to calculate the reorder point, so that replenishments take place at the proper time.
B) to minimize the sum of carrying cost and holding cost.
C) to maximize the customer service level.
D) to minimize the sum of setup cost and holding cost.
E) to calculate the optimum safety stock.

Valerie Ramirez · Accepted Answer

Final Answer : D, Explanation :   The basic Economic Order Quantity (EOQ) model, represented by the formula   Q ∗ = 2 D S H Q^* = \sqrt{\frac{2DS}{H}} Q ∗ = H 2 D S ​ ​  , is designed to minimize the total cost associated with ordering and holding inventory. This total cost includes setup costs (or ordering costs) represented by   S S S   in the formula, and holding costs represented by   H H H  . The model does not directly address reorder points, customer service levels, or safety stock calculations.

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