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What is the purpose of calculating an economic order quantity (EOQ) for a raw material?
A. To minimise the stockholding quantity of the material
B. To minimise the stockholding costs of the material
C. To minimise the total cost of purchasing and storing the material
D. To enable the re-order level of the material to be establishedIt is saying C is correct answer. In explanation it is saying that cost of purchasing means ordering cost. I have no clue what he meant.
C is the correct answer.
Despite the explanation you quote, the total cost of purchasing and storing is the total of all the costs involved i.e. the cost of buying, the cost of ordering, and the cost of holding the inventory.
The cost of buying the material will be the same over the year however many are ordered each time. The other two costs over the year will change depending on the order quantity and the whole idea of calculating the EOQ is to minimise that total.
I do explain all this in my free lectures on inventory control.
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