Which of the following equations determines the total annual carrying costs when no safety stock is kept?
A)Cost of placing an order × Order quantity
B)Cost of placing an order × Number of orders per year
C)Cost of placing an order × One-half of the order quantity
D)Unit carrying costs per year × One-half of the order quantity

Question

Quizplus · Accepted Answer

The equation for total carrying costs when no safety stock is kept is the product of the unit carrying costs per year and one-half of the order quantity. This is because without safety stock, inventory is constantly being depleted and reordered, resulting in an average inventory level of one-half of the order quantity. Option A is the equation for ordering costs, option B is the equation for total ordering costs, and option C is an incorrect formula that does not consider the unit carrying costs per year.

Which of the Following Equations Determines the Total Annual Carrying