1. Profile photo of John Moffat says

    To calculate the holding cost of inventory over a year.

    Order quantity/2 is the average inventory throughout the year, ignoring any buffer inventory (which is what is usually the case in the exam). If there is buffer inventory, then the average inventory is higher by that amount throughout the year.

      • avatar says

        thank you sir.
        one more question please

        when is this formula used? ‘(buffer inventory + order quantity/2)*holding cost per unit’.

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