Question

28. Which of the following statements about the basic EOQ model is INCORRECT?

	A.	The EOQ increases as the setup cost increases.
	B.	The EOQ decreases as the inventory holding cost increases.
	C.	The number of orders to place in a year decreases as the per-unit inventory holding cost increases.
	D.	The EOQ increases as the annual demand increases.

33. Suppose a hospital uses a periodic review model to control inventory. During the past year, the mean daily demand for bandage BX-5 was 200 and the demand was normally distributed. The standard deviation of the daily demand was 8. The inventory level was reviewed once every 3 days. It takes 1 day to receive the deliveries of the bandage after an order is placed. To ensure a target service level of 98%, how many bandages should the hospital order each time? Find the closest value.

	A.	419
	B.	830
	C.	800
	D.	833

Answer 1

28. The correct answer is option C.

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. EOQ is directly proportional to annual demand and cost per order and it is inversely proportional to annual holding cost per unit.