eoq

As I do explain in my free lectures on this, the most important cost of holding inventory is the interest cost of the money tied up in inventory. Holding one unit of average inventory for one year means that $10 cash is tied up in inventory that is losing them interest at 15% per year. Therefore a holding cost of 15% x $10 p.a. (in addition to any other holding costs that there may be).

So we always add the finance cost to the Holding cost just like you also did in example 1 of your lecture video because we are losing interest on cash because our cash being tied in inventory (as you said) Sir, there is a question called Dusty Co requirement (a) (ii) (September/December 2019) where it says "holding cost of component K, excluding finance costs, is $0.21 per unit per year.". So I have included the finance cost in the Holding cost & calculated the Total costs of inventory like this: EOQ = square root 2 x 1500,000 x $252 / (0.21 x 1.03) = 59119 Ordering cost = 25.37 x 252 = $6,393 Holding cost = 29,559 x 0·2163 = $6,393 Total inventory costs = $12786 Please correct me If I am wrong anywhere! Thank you :)

No that is not correct. If you include the finance cost then the holding cost is 0.21 + (3% x $14) = 0.63 per unit per year (and the examiner has a note in his answer saying that using 0.63 as the holding cost would get full marks).