If Economic order quantity (EO

If the Economic Order Quantity (EOQ) is increased (meaning larger order sizes are placed), the total carrying (holding) costs increase, while the total ordering costs decrease.    Total Carrying Cost – Increases Carrying Cost = EOQ/ 2 × Carrying Cost per unit Since the company is ordering in larger quantities, the average inventory held increases, resulting in higher storage, insurance, and obsolescence costs. T hus carrying cost rises.   Total Ordering Cost – Decreases Ordering Cost = Annual Demand/ EOQ × Ordering Cost per order With a higher EOQ, fewer orders are needed throughout the year, reducing administrative and setup costs. As such ordering cost falls.   The EOQ model acts as a balance between these two, minimizing their sum.