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Ordering costs include all the costs incurred while placing an order and receiving the order, it does not include the actual cost of the goods. These costs include cost of preparing the order or the invoice, the stationery used, salary of the clerks, telephone costs etc. There is a cost involved in placing each order so firms try to avoid ordering for items individually so what they do is that they place the combined order for many items in one order to reduce the costs. Each order has a fixed costs associated with it and it is independent of the number of items in the order. If the ordering cost is C, the total demand or the number of units required is D and the number of items in an order is Q then:
Total Ordering cost = C × D/Q
Total Ordering cost = C × D/Q
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