Inventory Management What is total annual cost how to calcul

Inventory Management What is total annual cost? how to calculate it?

Solution

Total annual cost in inventory management is defined as the sum of annual ordering and holding costs.

The Total Annual cost mathematically is calculated by

TAC=Annual ordering cost + Annual holding cost

=DS/Q + HQ/2

where D is annual demand

S=ordeing cost

H=holding cost

Q=economic order quantity