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looking at the calculations on inventory control, The re-order cost was calculated on per annum basis,but the holding cost was calculated on per order basis.
for the re-order cost, number of orders per annum multiplied by $20. but for holding cost, average inventory per order multiplied by 10% of each desk price of $25.
i would like to know why.The holding cost is not calculated on a per order basis!
The holding cost depends on the level of inventory – more units, more holding cost.
So to get the total holding cost over the year we multiply the average level of inventory by the holding cost per unit per year. The average inventory level throughout the year is the order quantity divided by 2.(Have you watched my free lecture? If not, then I suggest that it will help you on this.)
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