Type of fixed order qty model that determines amt of item to be purchased or manufactured at one time

• A. EDI
• B. Dock-2-stock
• C. Economic order quantity (EOQ)
• D. Distribution channel

Answer: (C)

The main idea is a fixed order quantity approach that picks a single, constant batch size to order each time. The best example of this model is the Economic Order Quantity. EOQ finds the optimal order size that minimizes total annual costs by balancing two opposing cost forces: the cost of placing orders (or setup when producing) and the cost of holding inventory. If you order in large batches, you reduce how often you place orders but raise holding costs for the extra stock; ordering in small batches lowers holding costs but increases ordering costs. EOQ mathematically captures this trade-off and gives the order quantity that minimizes total cost, using the formula Q* = sqrt(2DS/H), where D is annual demand, S is cost per order, and H is annual holding cost per unit. This model assumes steady demand, constant lead time, and no stockouts, and it’s the standard method for determining an optimal fixed order quantity.