The economic order quantity (EOQ) formula requires the calculation of holding costs and ordering costs. Determine whether the following costs are items that should be included in holding costs,
Ordering costs or should not be included at all. The cost associated with a 'stock out' should be
Included in:
A) Holding cost
B) Ordering cost
C) Should not be included

Question

Quizplus · Accepted Answer

Stock out costs are not included in either holding costs or ordering costs. Holding costs relate to the costs of holding inventory, such as storage and insurance, while ordering costs are associated with the costs of placing orders, such as purchasing and delivery costs. Stock out costs are considered separately as they relate to the costs incurred when inventory runs out, such as lost sales or customer dissatisfaction.

The Economic Order Quantity (EOQ) Formula Requires the Calculation of Holding