CIMA Financial Reporting (F1) Practice Exam

The main idea is that the EOQ model relies on a steady, predictable flow of stock: demand occurs at a constant rate and lead time is fixed. When demand is constant, inventory is drawn down at a steady pace, and with a known, constant lead time, you can time orders so the replenishment arrives just as stock runs low. This makes the total cost a straightforward trade-off between a fixed ordering cost and holding cost on the average inventory, yielding the classic EOQ decision rule.

If either demand or lead time varied, you’d need safety stock or a different modeling approach, which is why the other statements aren’t consistent with the basic EOQ framework. While assuming a constant purchase price is common, it’s the combination of constant demand and constant lead time that truly underpins the EOQ calculation.