When Using the Economic Order Quantity Model

question 104

Multiple Choice

When using the economic order quantity model

• A) ordering costs increase as the level of inventory increases.
• B) carrying costs decrease as the level of inventory increases.
• C) costs are minimized when total carrying costs and total ordering costs are equal.
• D) none of the other answers are correct

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Definitions:

Large Support Departments

Essential organizational units that provide services and support to the core functions of a business but do not directly contribute to profit generation.

Overhead Cost Drivers

Factors that significantly influence the incurrence of overhead costs, helping in the allocation of overheads to products or services based on their usage or consumption.

Management Accountant

A finance professional who specializes in internal financial processes, budgeting, and cost analysis to aid managerial decision-making.

Total Contribution Margin

The difference between sales revenue and variable costs, representing the total amount available to cover fixed expenses and generate profit.