Answer (C) is correct . The optimal level of inventory is affected by the factors in the economic order quantity (EOQ) model and delivery or production lead times. These factors are the annual demand for inventory, the carrying cost, which includes the interest on funds invested in inventory, the usage rate, and the cost of placing an order or making a production run. The current level of inventory has nothing to do with the optimal inventory level.
Answer (A) is incorrect because The usage rate of inventory is a factor in determining how much inventory to carry.
Answer (B) is incorrect because The cost of inventory affects carrying costs and a firm wants to minimize its inventory carrying costs.
Answer (D) is incorrect because The cost of placing an order affects how often orders are placed. A firm wants to minimize its ordering costs.
|
