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Sir, I’m confused here with the EOQ calculation. Please help me on this.
1) Reorder costs includes all the costs that are related in reordering each order such as delivery cost, installation & inspection cost etc will all be included as total reordering cost?
For eg, delivery cost $15 and installation cost is $2 and other charges $3.
Is that correct that we have total reordering cost of $20 in the calculation of EOQ we have to take the total reorder cost.
2) Similarly, holding costs include costs such as holding the inventory, insurance cost and interest cost of money tied up in inventory.
If we are given holding cost as $4 with insurance cost as $1.50 and interest cost as $0.50 so in total we will have holding cost of $6 when we will use EOQ formula?
1. Yes 🙂
2. Yes again 🙂
(Have you watched my free lectures on the management of inventory?)