Carrying costs of inventory-relevant costs of eoq model, Managerial Accounting

Carrying costs of inventory

These are costs incurred because the firm has decided to maintain inventories. They generally consist of:


•    Stock-out costs
•    Insurance costs
•    Warehouse and storage costs
•    Material handling costs
•    costs of obsolescence

Total Ordering Cost = (Total demand for period x Ordering Costs per period) / Quantity Ordering
                             = DO/Q


Total Holding Costs  = (Quantity Ordered x Holding Costs per unit) / 2
                             = Q H/2


Therefore total relevant costs (TC) for any order quantity can be expressed as:

TC = DO/Q + Q H/2
                           


We can determine a minimum of this total cost function by:

i. Differentiating the above formula with respect to Q and setting the derivative (1st) equal to zero.

dTC/ dQ = (-DO/Q2) + H/2 = 0

2286_formula1.jpg

                        
ii. Equating ordering costs to holding costs.

DO/Q = Q H/2

1753_formula2.jpg

 

Posted Date: 12/6/2012 6:07:47 AM | Location : United States







Related Discussions:- Carrying costs of inventory-relevant costs of eoq model, Assignment Help, Ask Question on Carrying costs of inventory-relevant costs of eoq model, Get Answer, Expert's Help, Carrying costs of inventory-relevant costs of eoq model Discussions

Write discussion on Carrying costs of inventory-relevant costs of eoq model
Your posts are moderated
Related Questions
Explain the Investment versus Speculation? In brief describes the following terms: a) Investment versus Speculation. b) Active and Passive Equity Management c) Systematic v

What are the Objectives of budgetary control 1) Planning : planning is an important managerial function. it helps to decide in advance, what to do how to do it when to do it a

Standard costing in modern environment Standard costing has traditionally been associated with labor-intensive operations, but it can be applied to capital-intensive production

Explain the Break-Even Analysis  The study of cost volume profit analysis is often referred to as break-even analysis and the two terms are used interchangeably by many. This i


Issa Company manufactures a personal computer designed for use in schools and markets it under its own label. Issa has the capacity to produce 25000 units a year but is currently p

Determine the tyoes of Cost centre Cost centre can be of two kinds: 1. Impersonal cost centre: consisting of a location or item of equipment (or group of these) like machi

Find the value of the following: a.    If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital. b.    If the capital of propriet

You are charged with describing the important considerations in the decision-making process to upper management. In your response, be sure to include the following: • A descript

When the stock market is going up over a long period of time, investors can become complacent about the risks of being a stockholder. After the significant decline of the stock mar