Comments

  1. avatarMohammed says

    Sorry if this has been asked before, but when calculating the total cost p.a. at the EoQ, if the number of orders calculated returns a decimal answer (such as 11.25 orders in the question above), shouldn’t we round to 12 and then apply the order cost? Surely there’s no sense is calculating the cost of 11.25 orders…(unless we live amongst unicorns).. or is this like an average and in reality you’d make 10 orders of 160 and an 11th order of 200 units (or what ever other arrangement)

    • Avatar of johnmoffatjohnmoffat says

      Obviously you cannot make 11.25 orders.

      However (and I do explain this in the lecture) we assume that it is a long term decision. In the first year you will place 12 orders, but there will be some inventory left at the end of the yea. So in the second year you will only need 11 orders, and so on.

      On average there will be 11.25 orders, and it is important for the costings not to round this.

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