Sensitivity Analysis on the Economic Order Quantity (EOQ)formula Can Help

question 92

Multiple Choice

Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

• A)How critical are errors in estimating demand (D),inventory holding cost (H),and setup cost (S)?
• B)What should happen to lot sizes if interest rates drop?
• C)What should happen to cycle inventory if the demand rate increases?
• D)What should happen to lot sizes if supply and lead-time uncertainty increase?

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Definitions:

Consolidated Balance Sheet

A financial statement that aggregates the financial positions of a parent company and its subsidiaries, presenting as if the group were a single entity.

Dividends

Distributions from a company to its shareholders, representing the earnings of the corporation that are distributed among its stockholders.

Consolidated Balance Sheet

A financial statement presenting the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as one entity.

FIFO System

The FIFO (First In, First Out) system is an inventory valuation method where the first items placed in inventory are the first sold, aiming to match sales with the costs of the oldest inventory.