In EOQ, what does the variable D represent?

In EOQ, what does the variable D represent?

• A. Annual demand
• B. Setup cost
• C. Holding cost
• D. Price

Answer: (A)

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.