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asked 10 months ago
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The relation between the carrying cost and the ordering is explained by the given equation:
Annual inventory cost = Ordering + carrying cost or holding cost
TC = S.D/Q + C.I.Q/2
These two costs are inversely related with each other and as order size increases then fewer orders are required causing the ordering cost to decline whereas the average amount of inventory on hand will increase resulting in increase in carrying costs.
Annual inventory cost = Ordering + carrying cost or holding cost
TC = S.D/Q + C.I.Q/2
These two costs are inversely related with each other and as order size increases then fewer orders are required causing the ordering cost to decline whereas the average amount of inventory on hand will increase resulting in increase in carrying costs.
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