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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 establishedSir the answer is C and I did B.
In explanation it is written that cost of purchasing as ordering. It is correct to say that? I mean we want mean purchase price of the inventory by cost of purchase?The EOQ formula looks at both Golding costs and ordering costs. Unless there are bulk discounts, the cost of the material bought can be ignored because 9ver the year it is constant.
Therefore B is wrong as it considers only holding costs.
C uses the term ‘purchasing’ and we have to decide whether that means just the cost of the material or also includes everything to do with the purchasing material, including the cost of placing the orders.
As A, B and D are certainly wrong, we are forced to go to C as the best option.
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