Conquer the CLTD Challenge 2025 – Navigate Your Path to Logistics Success!

The Economic Order Quantity (EOQ) model is designed to identify the optimal order quantity that minimizes total inventory costs, which include ordering costs and holding costs. The foundational formula for calculating EOQ is derived from the balance between these costs.

The correct approach includes the key elements: the annual demand (usage), the setup or ordering cost per order, and the carrying or holding cost per unit. Specifically, the formula utilizes the number of orders per year, which combines these factors effectively.

Option B accurately encapsulates this formula as it incorporates the factor of two. The "2" in the numerator accounts for doubling the annual usage and setup costs, which helps reflect the total costs involved in maintaining the inventory and ensures that both the order size and frequency are taken into consideration. The denominator, consisting of the carrying costs multiplied by the unit cost, represents the ongoing costs associated with holding inventory. This formulation enables the calculation of an optimal order quantity that minimizes total costs.

In contrast, the other options either do not align with the EOQ formula or introduce factors that are irrelevant. Some refer to metrics that apply to completely different inventory management calculations, such as inventory turnover or operational efficiency, which do not pertain to the context of determining the optimal order quantity. Understanding