The EOQ is the smallest lot size that a supplier will allow a customer to order.

Question

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The question presents a true/false statement about EOQ and asks you to evaluate it.
Option 1 (True): The claim that the EOQ is the smallest lot size a supplier will allow is not accurate. EOQ stands for Economic Order Quantity and is derived from balancing annual holding costs with ordering costs to find the quantity that minimizes total relevant costs for replenishment. It is a calculation based on demand, cost per order, and carrying cost per unit, not a constraint set by a supplier on minimum quantities. If a supplier has a minimum order quantity, that concept is separate and is known as MOQ, which is not determined by EOQ mathematics.
Option 2 (False): The statement is incorrect because EOQ is about optimizing total procurement costs for a given demand pattern, not about the minimum quantity a supplier will permit. EOQ answers the question of “how much should we order” to minimize costs, while MOQs answer the question “what is the smallest quantity the supplier will accept.” The two ideas serve different purposes in inventory management, and conflating them leads to the mistaken belief that EOQ enforces a minimum order. In practice, if the EOQ computed quantity is below the supplier’s MOQ, a company would either place a larger order to meet the MOQ or negotiate terms, but EOQ itself does not impose the supplier’s minimum as a constraint.
Option 3 (True) in disguise or misinterpretation could arise if one conflates EOQ with procurement policies; however, the core concept remains that EOQ is an economic quantity that minimizes total costs, not a mandatory minimum. This misinterpretation stems from mixing operational constraints with the optimization formula.
Option 4 (False) would be consistent with standard inventory theory, since EOQ is not concerned with the supplier’s minimum accepted quantity, but rather with cost optimization given demand and cost parameters. The emphasis of EOQ is theoretical optimization, independent of external minimums unless negotiation forces a higher order size than EOQ.

MGS310001.2025FA Test 03: Chap 10,11

The EOQ is the smallest lot size that a supplier will allow a customer to order.

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Similar Questions

Question at position 22 Given the following information, what is the EOQ for this company: Average demand per week = 135 The ordering cost = $135 The inventory holding rate per year = 4% Unit cost = $50 Assume 50 weeks per year975 units955 units305 units191 units

Question at position 20 The annual demand of a certain item is 5,400 units and the computed EOQ is 900 units. What will be the time between orders in months?6 months 4 months3 months 2 months

EOQ should be used if you use a make-to-order strategy and the customer specifies that the entire order be delivered in one shipment.

Considering the EOQ model, larger lots are justified with higher holding costs.

An item experiences an annual demand of 3,600 units. It costs $10 to hold an item in inventory for one year and $20 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year.

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MGS*3100*01.2025FA Test 03: Chap 10,11

The EOQ is the smallest lot size that a supplier will allow a customer to order.

View Explanation

Log in for full answers

Similar Questions

Question at position 22 Given the following information, what is the EOQ for this company: Average demand per week = 135 The ordering cost = $135 The inventory holding rate per year = 4% Unit cost = $50 Assume 50 weeks per year975 units955 units305 units191 units

Question at position 20 The annual demand of a certain item is 5,400 units and the computed EOQ is 900 units. What will be the time between orders in months?6 months 4 months3 months 2 months

EOQ should be used if you use a make-to-order strategy and the customer specifies that the entire order be delivered in one shipment.

Considering the EOQ model, larger lots are justified with higher holding costs.

An item experiences an annual demand of 3,600 units. It costs $10 to hold an item in inventory for one year and $20 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year.

More Practical Tools for Students Powered by AI Study Helper

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MGS310001.2025FA Test 03: Chap 10,11