The EOQ Formula Has Been Criticised in a Number of Areas

question 38

Multiple Choice

The EOQ formula has been criticised in a number of areas. Which of the following is not an area of common criticism?

• A) The assumptions included in the models.
• B) The real costs of stock in operations.
• C) Small errors in estimating will result in a significant deviation.
• D) The use of the models as prescriptive devices.

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Definitions:

Capital Loss

The result of selling an investment or asset for less than its original purchase price.

Tax Expense

The total amount of tax an individual or corporation owes to the government, displayed on financial statements.

Appreciated Property

An asset that has increased in value over time from its original purchase price.

Nonliquidating Distribution

A nonliquidating distribution refers to distributions made by a corporation to its shareholders that are not in complete termination of the shareholder’s interest in the corporation.