Love the example very clear and to the point. Quick question, This method does not account for opportunity cost and seasonal factors does that mean its not practical to use EOQ in real life ? Is there a method that account for opportunity cost and seasonal factors ?
Good day sir 🙂 Thanks for the lecture. Do you mind explaining why would we include the discount in the holding cost? I thought there should be 2 different parties who supply us the inventory and hold the inventory? Do we assume the supplier hold the inventory for us?
As I do explain in the lecture, the holding cost is the interest cost of the money spent buying the goods. The discount from the supplier reduces the net cost of the goods and therefore reduced the interest cost.
Thanks for the explanation but in the BPP text book it doesn’t reduce the discount % when calculating holding cost. its really confuse me which one method should I follow!
SYY14 says
Love the example very clear and to the point. Quick question, This method does not account for opportunity cost and seasonal factors does that mean its not practical to use EOQ in real life ? Is there a method that account for opportunity cost and seasonal factors ?
John Moffat says
I do not have the BPP Study Text (only the Revision Kit) and so I cannot comment on what is in their text.
The holding cost of the money spent is based on the net cost of the goods (after any discount) and is therefore as shown in my lectures.
mslanina says
Thank you sir! Another informative lecture.
John Moffat says
Thank you for your comment 🙂
Yuu02 says
Good day sir 🙂 Thanks for the lecture.
Do you mind explaining why would we include the discount in the holding cost? I thought there should be 2 different parties who supply us the inventory and hold the inventory?
Do we assume the supplier hold the inventory for us?
John Moffat says
As I do explain in the lecture, the holding cost is the interest cost of the money spent buying the goods. The discount from the supplier reduces the net cost of the goods and therefore reduced the interest cost.
AdamGosim says
Thanks for the explanation but in the BPP text book it doesn’t reduce the discount % when calculating holding cost. its really confuse me which one method should I follow!