If a Firm Uses the EOQ Model to Manage Its

question 18

Multiple Choice

If a firm uses the EOQ model to manage its inventory and its managers decide to hold safety stock,its

• A) reorder costs will fall.
• B) processing costs will fall.
• C) orders will be less frequent.
• D) shortage costs will rise.
• E) first order is increased to include the extra number of units sold.

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Definitions:

Residual Equity

Residual Equity represents the amount of equity that remains for the common shareholders after all liabilities and preferential stock claims have been settled.

Assets

Assets are possessions of an individual or a business that hold value and can yield benefits in the future.

Liabilities

Financial obligations or debts that a company owes to outside parties, which must be paid back in the future.

Liabilities

Financial obligations or debts that an entity owes to others, which need to be settled over time via the transfer of economic benefits.