CAF-5 · Chapter 16 · Question 8 of 10
If a company uses the Economic Order Quantity (EOQ) model and also maintains a permanent safety stock, how is the "average inventory level" calculated for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) (EOQ ÷ 2) + Safety Stock
Explanation
Under the EOQ model, average cycle inventory is half of the order quantity (EOQ/2). If a company also holds a permanent safety stock, this baseline amount is added to the average cycle stock to find the total average inventory level throughout the year.
More Inventory Management MCQs
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