Economic Order Quantity

[shunmas]

A company determines its order quantity for a raw material using the EOQ model. What would be the effects on the EOQ and on Total Inventory Holding Cost of an increase in the cost of placong an order for the raw materials?

EOQ Total Inv. Holding Cost

Increase No Effect
Decrease No Effect
Increase Increase
Decrease Decrease

Your help will be much appreciated...Thanks.

[Suze]

the EOQ minimizes inventory holding costs and ordering costs hence it tells us how many orders we should place and how many items we should order per order.

If ordering cost increases during that period I would say that holding costs would definitely increase thus increasing the cost of production.

[SandyHood]

Suze's answer is perfect, so a second response is only adding to what she has said already.

If the ordering cost per order rises, it becomes more efficient to reduce the number of orders placed as the fewer orders will mean not incuring the higher ordering cost as many times in a year.
If we are ordering more, we will increase the number of units in stock. If there are more units in the stock (on average) then the total holding cost will be higher.