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Unformatted text preview: cludes:
a) Physical Cost of Space (3%)
b) Taxes and Insurance (2 %)
c) Breakage Spoilage and Deterioration (1%)
d) Opportunity Cost of alternative investment (18%)
Since inventory may be changing on a continuous basis,
holding cost is proportional to the area under the
inventory 3 Inventory as a
Function of Time
Function Relevant Costs
Ordering Cost (or Production Cost)
Includes both fixed and variable components. C(x) = K + cx for x > 0 and =0 for x = 0.
cx 4 Relevant Costs
Penalty or Shortage Costs. All costs that accrue when
insufficient stock is available to meet demand. These
Loss of revenue for lost demand
Costs of bookkeeping for backordered demands
Loss of goodwill for being unable to satisfy demands
when they occur.
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- Spring '14