In EOQ, what does the variable D represent?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

In EOQ, what does the variable D represent?

Explanation:
In the EOQ model, D is the annual demand rate—the total quantity of units expected to be used up in a year (usually measured in units per year). This input drives how often you need to place orders and how large each order should be to minimize total costs. The standard EOQ formula Q* = sqrt(2DS/H) uses D in the numerator, showing that higher annual demand increases the optimal order quantity because you want to cover more demand with fewer orders while balancing holding costs. The other terms represent costs or price: setup (ordering) cost is the cost per order, holding cost is the cost to keep one unit in inventory per year, and price is the cost per unit.

In the EOQ model, D is the annual demand rate—the total quantity of units expected to be used up in a year (usually measured in units per year). This input drives how often you need to place orders and how large each order should be to minimize total costs. The standard EOQ formula Q* = sqrt(2DS/H) uses D in the numerator, showing that higher annual demand increases the optimal order quantity because you want to cover more demand with fewer orders while balancing holding costs. The other terms represent costs or price: setup (ordering) cost is the cost per order, holding cost is the cost to keep one unit in inventory per year, and price is the cost per unit.

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