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  1. Sir,
    if we are to see the total annual inventory costs without quantity discounts then purchase costs are irrelevant according to your lectures..but as i was solving a question from BPP revision kit they are including the purchase costs in the calculation of the same…
    what is the step to follow?
    Thanking you in advance

    • If there are no quantity discounts, then it doesn’t matter whether you include the purchase costs or not – it won’t make any difference to the decision (unless, obviously, the question specifically asks for them to be included, which is very unlikely).

  2. Sir,
    Why do you take the average of Inventory should calculating holding cost. Say my EOQ =1000 units, then for the calculation of holding costing it’s 500* holding cost! Sir why it’s like that? Why can’t I take 1000units?

    Also in addition to that, for the calculation of buffer Inventory why is that I don’t take the average of buffer Inventory inorder to add along with the holding cost? Say if my buffer Inventory is 100 then I should take 100/2* holding cost right?

    Thankyou.

    • The level of inventory keeps fluctuating between 1,000 units (when you have just received a delivery) and 0 units (just before you receive the next delivery). Therefore on average there are (1,000 + 0)/2 = 500 units in inventory. I do explain this in the first lecture on inventory management.

      If in addition there is buffer inventory of 100 unit then you are holding an extra 100 units all year to be safe, and so the average inventory would be 500 + 100 = 600 units.

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