SOC 200 - Case Study Report 1: THREE
JAYS CORPORATION Actual Exam
2026/2027 | Complete Solution | Verified
Answers | Pass Guaranteed - A+ Graded
Inventory Management Fundamentals & EOQ
Q1: In the context of the Economic Order Quantity (EOQ) model, which of the following
statements best describes the relationship between ordering costs and holding costs?
A. As order quantity increases, both holding costs and ordering costs increase.
B. As order quantity increases, holding costs increase while ordering costs decrease.
C. As order quantity increases, holding costs decrease while ordering costs increase.
D. Holding costs and ordering costs are independent of the order quantity.
Correct Answer: B
Rationale: This choice is correct because the fundamental trade-off in EOQ is that
ordering larger quantities reduces the frequency of orders (lowering ordering costs) but
increases the average inventory on hand (raising holding costs).
Q2: Which of the following is NOT a core assumption of the basic EOQ model?
A. Demand is known and constant over time.
B. The order quantity is received all at once (no incremental replenishment).
C. Lead time is known and constant.
D. Quantity discounts are available for larger orders.
Correct Answer: D
Rationale: The best answer is D because the basic EOQ model assumes a constant
unit price; quantity discounts require a different, more complex model variation to
analyze the price breaks.
Q3: If a company wants to reduce its total annual inventory cost, which action directly
addresses the sum of holding and ordering costs according to the EOQ logic?
A. Order the maximum quantity possible to minimize shipping costs.
B. Order the exact quantity that minimizes the sum of holding and ordering costs.
C. Order based strictly on the supplier's minimum requirements to save time.
D. Order the smallest quantity possible every day to minimize on-hand inventory.
Correct Answer: B
, Rationale: This aligns with the EOQ model principle that the total cost curve is
U-shaped, and the goal is to find the specific order quantity (the EOQ) where holding
and ordering costs intersect at their minimum total.
Q4: In the formula for EOQ, what does the variable "S" typically represent?
A. Annual demand in units
B. Cost per unit
C. Ordering or setup cost per order
D. Holding or carrying cost per unit per year
Correct Answer: C
Rationale: This choice is correct because "S" (or sometimes "K") represents the fixed
cost incurred every time an order is placed, regardless of the order size, such as
administrative paperwork or delivery setup fees.
Q5: What is the impact on the EOQ if the annual demand (D) doubles while all other
costs remain the same?
A. The EOQ decreases by half.
B. The EOQ remains the same.
C. The EOQ increases, but less than double.
D. The EOQ doubles.
Correct Answer: C
Rationale: The best answer is C because in the EOQ formula, demand is under a
square root; doubling demand results in the square root of 2 (approx 1.41), meaning the
EOQ increases by about 41%, not 100%.
Q6: Three Jays Corporation is analyzing its inventory costs. Which of the following is an
example of a holding (carrying) cost?
A. Transportation fees for receiving a shipment.
B. Salary of the purchasing manager.
C. Cost of capital tied up in inventory and warehouse storage space.
D. Production setup costs for the machinery.
Correct Answer: C
Rationale: This choice is correct because holding costs are the costs associated with
having the inventory sit in storage, such as insurance, spoilage, warehouse rent, and
the opportunity cost of the money invested.
Q7: A manager argues that ordering in very small batches frequently is the best
strategy. Under which condition would this strategy be most economically justified?
A. When ordering costs are extremely high relative to holding costs.
B. When holding costs are extremely high relative to ordering costs.
C. When demand is highly seasonal and unpredictable.
JAYS CORPORATION Actual Exam
2026/2027 | Complete Solution | Verified
Answers | Pass Guaranteed - A+ Graded
Inventory Management Fundamentals & EOQ
Q1: In the context of the Economic Order Quantity (EOQ) model, which of the following
statements best describes the relationship between ordering costs and holding costs?
A. As order quantity increases, both holding costs and ordering costs increase.
B. As order quantity increases, holding costs increase while ordering costs decrease.
C. As order quantity increases, holding costs decrease while ordering costs increase.
D. Holding costs and ordering costs are independent of the order quantity.
Correct Answer: B
Rationale: This choice is correct because the fundamental trade-off in EOQ is that
ordering larger quantities reduces the frequency of orders (lowering ordering costs) but
increases the average inventory on hand (raising holding costs).
Q2: Which of the following is NOT a core assumption of the basic EOQ model?
A. Demand is known and constant over time.
B. The order quantity is received all at once (no incremental replenishment).
C. Lead time is known and constant.
D. Quantity discounts are available for larger orders.
Correct Answer: D
Rationale: The best answer is D because the basic EOQ model assumes a constant
unit price; quantity discounts require a different, more complex model variation to
analyze the price breaks.
Q3: If a company wants to reduce its total annual inventory cost, which action directly
addresses the sum of holding and ordering costs according to the EOQ logic?
A. Order the maximum quantity possible to minimize shipping costs.
B. Order the exact quantity that minimizes the sum of holding and ordering costs.
C. Order based strictly on the supplier's minimum requirements to save time.
D. Order the smallest quantity possible every day to minimize on-hand inventory.
Correct Answer: B
, Rationale: This aligns with the EOQ model principle that the total cost curve is
U-shaped, and the goal is to find the specific order quantity (the EOQ) where holding
and ordering costs intersect at their minimum total.
Q4: In the formula for EOQ, what does the variable "S" typically represent?
A. Annual demand in units
B. Cost per unit
C. Ordering or setup cost per order
D. Holding or carrying cost per unit per year
Correct Answer: C
Rationale: This choice is correct because "S" (or sometimes "K") represents the fixed
cost incurred every time an order is placed, regardless of the order size, such as
administrative paperwork or delivery setup fees.
Q5: What is the impact on the EOQ if the annual demand (D) doubles while all other
costs remain the same?
A. The EOQ decreases by half.
B. The EOQ remains the same.
C. The EOQ increases, but less than double.
D. The EOQ doubles.
Correct Answer: C
Rationale: The best answer is C because in the EOQ formula, demand is under a
square root; doubling demand results in the square root of 2 (approx 1.41), meaning the
EOQ increases by about 41%, not 100%.
Q6: Three Jays Corporation is analyzing its inventory costs. Which of the following is an
example of a holding (carrying) cost?
A. Transportation fees for receiving a shipment.
B. Salary of the purchasing manager.
C. Cost of capital tied up in inventory and warehouse storage space.
D. Production setup costs for the machinery.
Correct Answer: C
Rationale: This choice is correct because holding costs are the costs associated with
having the inventory sit in storage, such as insurance, spoilage, warehouse rent, and
the opportunity cost of the money invested.
Q7: A manager argues that ordering in very small batches frequently is the best
strategy. Under which condition would this strategy be most economically justified?
A. When ordering costs are extremely high relative to holding costs.
B. When holding costs are extremely high relative to ordering costs.
C. When demand is highly seasonal and unpredictable.
