What is the concept of carrying cost? How does increased carrying cost ascertain lower inventory level and vice-versa?
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Material costing
Replies (4)
Are you talking about lower EOQ?
carrying cost is cost incurred for holding rawmaterial and i didn't understand ur next question can u elaborate it again
I think i have misinterpreted a sentence- " the lower the inventory level we want, the higher the cost to carry, the better." This is what i have found written in a few books, kindly explain what's the meaning?
2nd question is- while computing total carrying cost i don't understand what is the logic behind dividing the number of items supplied in one order by 2 & then multiplying it by carrying cost p.u p.a...what i mean is why don't we simply multiply the total number of units supplied p.a by carrying cost p.u p.a?
the reason behind to divide ordering quantity by 2 . here avg quantity of stock is taken since we dont hold throught out the peroid .
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