EOQ Includes Several Variables That Must Be Taken into Consideration

question 6

Multiple Choice

EOQ includes several variables that must be taken into consideration when calculating the optimal order size.One variable,the costs associated with holding inventory,is referred to as

• A)ordering costs.
• B)carrying costs.
• C)the reorder point.
• D)stockout costs.

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Definitions:

Net Present Value

An evaluation metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Capital Budgeting Decisions

The process of making investment decisions in fixed assets or projects with long-term implications for an organization's financial health.

Accounting Rate of Return

A financial ratio used to estimate the profitability of an investment, calculated as average annual profit divided by initial investment cost.

Accrual Accounting

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur.