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When are the holding costs raised?
Holding cost rises while the size of order rises. It is since a higher level of average stock will be kept during the year. Thus holding cost would comprise the cost of warehousing, staff and systems to assists and keep-up inventory, also the cost of insurance, damage, obsolescence, theft and deterioration, even is the cost of money or cash tied up as an example of cost of capital, that is the opportunity cost of investing within inventory.
A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and reven
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