Question

while calculating EOQ carrying cost is taken as​

Answer 1

The holding costs (also known as carrying costs) are the costs that are incurred to hold the inventory in a store or warehouse. ... The total holding cost usually depends upon the size of the order placed for inventory. Mostly, the larger the order size, the higher the annual holding cost and vice versa.

Answer 2

Answer:

While calculating EOQ carrying cost is taken as​$EOQ=\sqrt \frac{2*AO}{C}$

Explanation:

• The quantity to be ordered at one time is known as ‘ordering quantity’ and should be determined with good care. If it is small, a number of orders will have to be placed in a year involving costs in terms of clerical labour, material handling, etc.
• Also there will be loss in terms of price and transport costs. Large orders avoid these losses and will lead to economy in transport costs and price concessions.
• But there will be costs in terms of interest payments for the money locked up and in terms of storing costs.
• An order should be large enough to enable the firm to earn proper discounts and to take advantage of bulk transport but it should not be too large to involve too heavy payment of interest. If the price to be paid is stable, the optimum quantity to be ordered or economic order quantity (EOQ) can be determined by the formula.

Formula for EOQ

$EOQ=\sqrt \frac{2*AO}{C}$

where A – Consumption of the article concerned (in units) during a year;

O = Cost of placing one order including the cost of receiving the goods or ordering cost; and

C = Interest payment per unit per year including other variable cost of storing it (carrying cost per unit per annum)