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:

Capital Budgeting

The process by which a business determines and evaluates potential expenses or investments that are significant in amount.

Project Cash Flows

Refers to the net amount of cash being transferred into and out of a project, considering all revenues, expenses, and capital costs over its life.

Risk

In finance, risk is the potential for financial loss or the variability in the returns of an investment.

Principal

The original amount of money loaned or invested, before any interest or profit is added.