EOQ and its primary assumptions.

• A. Economic Order Quantity; assumes constant demand, fixed ordering cost, fixed holding cost, and no stockouts
• B. Economic Order Quantity; assumes fluctuating demand and backorders are common
• C. Economic Order Quantity; assumes unlimited storage capacity
• D. Economic Order Quantity; assumes constant demand and no stockouts

Answer: (A)

Economic Order Quantity is built on predictable, steady needs and fixed costs that don’t change with each order. The scenario that best matches this is one where demand is constant, there is a fixed cost to place every order, a fixed cost to hold inventory, and there are no stockouts. That combination lets the model determine a single order quantity that minimizes total cost by balancing ordering costs against holding costs.

Fluctuating demand and backorders violate the steady-demand and stockout-free assumptions, so they don’t fit the classic EOQ setup. Unlimited storage capacity isn’t the defining constraint of EOQ, and simply noting constant demand with no stockouts omits the essential fixed costs that drive the EOQ calculation.