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

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BlackTom AI · Accepted Answer

Starting with the given data, the annual demand is 5400 units and the EOQ is 900 units. 
Option by option analysis helps uncover why 2 months is the correct interval between orders.
6 months: This would imply only two orders per year, which contradicts the EOQ calculation. If you ordered 900 each time, you’d need 5400/900 = 6 orders annually, not 2. So 6 months is too long an interval.
4 months: A 4-month gap would yield 3 orders per year (12/4 = 3). But the EOQ framework tells us to balance setup costs with holding costs, which in this case leads to more frequent ordering (6 times a year) given the EOQ of 900 and annual demand of 5400. Thus 4 months is not consistent with the EOQ-derived order cycle.
3 months: This would result in 4 orders per year (12/3 = 4). Again, the calculation based on D/EOQ = 5400/900 = 6 orders per year shows that 3 months is too long a cycle and would not align with the EOQ guidance. So this option is incorrect.
2 months: Here, the annual demand divided by EOQ gives the number of orders: 5400/900 = 6 orders per year. The time between orders is then 12 months / 6 orders = 2 months. This matches the EOQ-derived cycle and the demand rate, making this the correct interval.
In summary, the EOQ model implies 6 orders per year, since each order covers 900 units of demand, and there are 5400 units to fulfill annually. Consequently, the time between orders is 12 months divided by 6, which equals 2 months. Therefore, the option stating 2 months aligns with the standard EOQ interpretation.

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

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