Total ordering cost
Total carrying cost
Opportunity cost
Re-order point
Answer is Right!
Answer is Wrong!
The correct answer is: B. Total carrying cost
The formula $\frac{{\text{Q}}}{2}$ is used to compute the total carrying cost. The total carrying cost is the cost of holding inventory. It includes the cost of storage, insurance, and obsolescence. The total carrying cost is calculated by multiplying the average inventory level by the carrying cost per unit.
The other options are incorrect:
- A. Total ordering cost is the cost of placing an order. It includes the cost of the order itself, as well as the cost of any shipping or handling charges. The total ordering cost is calculated by multiplying the number of orders per year by the cost per order.
- C. Opportunity cost is the cost of not doing something else. In the context of inventory management, the opportunity cost is the profit that could have been made if the money had been invested elsewhere. The opportunity cost is not directly measurable, but it can be estimated by considering the potential return on investment of other possible uses of the money.
- D. Re-order point is the level of inventory at which a new order should be placed. It is calculated by taking into account the lead time, the daily demand, and the safety stock. The re-order point is used to ensure that there is always enough inventory on hand to meet demand.