Question

Economic order quantity aims at minimizing

• A. Ordering cost
• B. Carrying cost
• C. Both
• D. Suppliers cost

Hint:

EOQ is used to minimize the total cost of inventory by balancing ordering and carrying costs.

Answer 1

The Correct Option is C

Picture two cost curves plotted against order quantity: ordering cost slopes downward as order size grows, while carrying cost slopes upward. Total inventory cost is their sum, and it is lowest exactly at the order quantity where these two curves cross, that is, where ordering cost equals carrying cost. The EOQ formula locates precisely this crossing point. So EOQ isn't minimizing just one of the two costs in isolation, it is minimizing their combined total, which means it targets both together.

Answer 2

Another way to see this is through simple logical elimination of what each single-cost option would actually achieve on its own.

1. Ordering cost: If the goal were only to minimize ordering cost, the best strategy would simply be to place one single enormous order per year, since fewer orders always means lower total ordering cost, regardless of the resulting warehouse burden.
2. Carrying cost: If the goal were only to minimize carrying cost, the best strategy would be to order in tiny quantities as frequently as possible (even daily), since near-zero inventory means near-zero holding cost, regardless of how often you place fresh orders.
3. Both: These two "on their own" strategies directly contradict each other; a sound inventory policy has to strike a balance rather than chase either extreme. EOQ is exactly this balancing quantity, chosen to minimize the combined total of ordering and carrying costs together.
4. Suppliers cost: This cost belongs to the supplier's own operations and is outside the scope of what a buyer's EOQ calculation is designed to control.

Since neither cost alone can be minimized without making the other worse, the EOQ model necessarily targets their sum.

Therefore, the correct answer is Both.