ManSci_EOQ

Inventory is such an expensive asset that it may account for as much as 50 percent of a firm's invested capital.

• True

• False

A stockout is a situation that occurs when there is no inventory on hand.

• True

• False

Inventory is any stored resource that is used to satisfy a current or future need.

• True

• False

The purpose of the EOQ model is to achieve a balance between the cost of holding inventory and the cost of stockouts.

• True

• False

Under the assumptions made to develop the EOQ model, average inventory is one half of the maximum inventory.

• True

• False

The two fundamental decisions that you have to make when controlling inventory are: (1) how much to order, and (2) how much money to spend. 

• True

• False

Answer explanation

´How much to order?

´When to order?

The economic order quantity helps one estimate the optimal number of units to purchase with each order.

• True

• False

The reorder point occurs during a stockout.

• True

• False

One of the assumptions of the basic EOQ model is that the receipt of inventory is instantaneous.

• True

• False

We can usually determine an appropriate safety stock even if we are unable to accurately assess the actual cost of a stockout

• True

• False