Question

What is the relationship between ordering cost and carrying costs in inventory management?

Answer 1

Ordering cost refers to the cost of ordering one order of raw material on the other hand carrying cost refers to the cost of managing and handling average inventory during the year. ordering cost is less when number of orders throughout the year are less which implies the quantity of one order is large thereby increasing the cost of carrying the inventory and vice versa.

Also at EOQ level which is economic order quantity level the ordering and carrying cost of inventory is equal.