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Sir, I just saw this question in Kaplan text.
Monthly demand for a product is 10,000 units. Purchase price is $10 per unit and the company cost of finance is 15%. Warehouse storage costs per unit pa is $2. Supplier charges $200 per order for delivery. Calculate EOQ.
The answer in the text says, Square root 2*120000*200/3.5
The calculation of cost of holding =(10*0.15) + 2= 3.5
Shouldn’t it be 2?
No – the answer is correct.
The interest cost of 15% (of the purchase price) is an extra cost of holding inventory.
Have you watched my free lectures on this?
Ooh, I get it now. I have watched the lecture but I was thrown off guard because of cost of capital. Thank you sir 🙂
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