Concept explainers
Which of the following is NOT an assumption of the EOQ model?
- a. It is possible to receive a purchase discount if the order quantity is sufficiently large.
- b. There is a fixed cost to submit each order that is independent of the amount ordered.
- c. Demand occurs at a constant rate per unit of time.
- d. There is a cost to hold each unit of inventory per unit of time.
To identify: The feature that is not an assumption of the EOQ model.
Explanation of Solution
Correct option: (a)
Correct answer:
It is possible to receive a purchase discount if the order quantity is sufficiently large.
Justification:
Economic order quantity (EOQ) is the optimum purchase quantity of an item at a single point during a period to minimum the annual cost for ordering and carrying the items in inventory. It is also known as the optimum lot size. The above assumption is not true with regards to the EOQ model because, the EOQ is always calculated under the assumption that there are no purchase quantity discounts unless otherwise they are explicitly mentioned by the seller.
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