Question

1. What are the different costs involved in the Economic Order Quantity Model? Describe in less than 12 lines. Which one is more important? Explain in less than 8 lines.

Answer 1

Different cost which are involved in economic order quantity are carrying cost, holding cost and price for order quantity

Ordering cost will be related to cost of ordering and it will mean that when each order is placed, there would be an ordering cost involved, so higher the number of order, higher will be the ordering cost and lower the number of order, lower will be the ordering cost.

Holding cost will relate to cost of holding the inventory and it will be including all the rent along with salaries.it will be related to cost of holding an inventory for longer period of time and it is also known as carrying cost.

I think that holding cost will be more important because it will be increasing the cost of carrying an inventory and it will be having a higher impact on the overall economic order quantity as it will be leading to inclusion of various factors like rent along with warehousing and other salary so this will be making a higher impact on the economic order quantity and I think, it is an important factor than ordering cost.