In the EOQ context for an item with steady demand, which assumption is correct?

Prepare for the PHFO Quantitative Analysis For Business Exam. Study with flashcards, multiple choice questions, hints, and explanations to ensure confidence and success in your exam!

Multiple Choice

In the EOQ context for an item with steady demand, which assumption is correct?

Explanation:
In the EOQ framework with steady demand, the crucial assumption is that the demand rate is constant over time. This makes the ordering policy predictable: you set a fixed order quantity so that the cycle length (order cycle) is Q divided by the constant demand, and the inventory level follows a regular sawtooth pattern. If demand were to fluctuate, the simple EOQ balance between ordering and holding costs would no longer hold, and you’d need adjustments like safety stock or a different stocking policy. Lead time variability isn’t the focus of this particular condition. The question targets the constant demand aspect, which is why the best answer is that demand does not fluctuate.

In the EOQ framework with steady demand, the crucial assumption is that the demand rate is constant over time. This makes the ordering policy predictable: you set a fixed order quantity so that the cycle length (order cycle) is Q divided by the constant demand, and the inventory level follows a regular sawtooth pattern. If demand were to fluctuate, the simple EOQ balance between ordering and holding costs would no longer hold, and you’d need adjustments like safety stock or a different stocking policy.

Lead time variability isn’t the focus of this particular condition. The question targets the constant demand aspect, which is why the best answer is that demand does not fluctuate.

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