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Dear sir,
I have a problem regarding the math below-
Monthly demand for a product is 10000 units. The purchase price is $10/unit and company’s cost of finance is 15% pa. Warehouse storage costs per unit pa are $2/unit. The supplier charges $200 per order for delivery.
Calculate the EOQ.
Now, why the holding cost in the ans. is not $2 only but ($10×0.15)+$2 = 3.5 ?The cost of finance is a cost of holding inventory (the more inventory you have, the more money is tied up and is losing interest).
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