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Ordering cost is £20 per order and holding cost is 25% of the value of inventory. What I want to do is calculate the EOQ. EOQ = 2DS H− −−−−√ E O Q = 2 D S H. Where. D = annual demand (here this is 3600) S = setup cost (here that's £20) H = holding cost. P = Cost per unit (which is £3 here)
The classic EOQ model is: Q = √2aK / h. with a being demand, K ordering costs, and h the holding costs. If K is 0 it yields an order quantity of 0. Is there any optimal way of determining the order quantity when there are no order costs? Usually in these cases where formulas fail (happens mostly when something is 0 or infinity) you have to ...
The elementary intuition is that adding a marginal unit brings the average cost down if the marginal cost is below the average cost. This can be made precise. ∂AC(q) ∂q = C ′ (q) ⋅ q − C(q) q2 = C ′ (q) ⋅ q q2 − C(q) q2 = 1 q (MC(q) − AC(q)). So, the marginal effect is negative if the marginal cost is smaller than the average ...
Therefore, the actual cost of capital is lower than the interest rate on the loan. This issue is minor to the point that it can be neglected for relatively safe debt (for sure if rated AAA or AA, mostly so if rated A and BBB, according to Table 12.2 on p. 454), but can become pretty significant for high-risk debt (BB and lower, ibid.).
So far, for just buying and then later selling, I have been calculating the average buy price using this formula. ((stockamount * price) + (stockamount * price)) / (stockamount + stockamount) So if I buy 10 shares at 2.00 and 5 shares at 3, I would get an average buy price of. ((10 * 2.00) + (5 * 3.00)) / (10 + 5) = 2.33.
D/Q D / Q. K K. C = DK Q + hQ 2 (1 − D P) C = D K Q + h Q 2 (1 − D P) In a way EBQ (also known as EPQ) EPQ is an extension of the EOQ model, the difference being. Note that if you produce stuff you need to store it somewhere, which comes at a cost. This is explicitly included in the EPQ model via the holding cost variable.
1. Marginal costs can be constant over portion of a cost curve but eventually they have to increase because resources will get scarce and there are diminishing returns to production eventually. Consider for example oil production. At the beginning you might start extracting oil only from reservoirs where oil literally just springs out of the ...
How you apply initial investment depends on the nature of that investment. You could consider the initial investment as a fixed cost (if that’s actually the case), then calculate the net present value of all revenues and subtract/ compare to the fixed cost. This requires taking care of inflation of course.
Upgrade and obsolescent. You can use conservative formula. (interest rates x purchase cost)/write-off period + write off rates + operating cost + maintenance cost) / total usage. Sometime you may need to add up tangible or intangible benefits. So in business, tools usage costing is not as simple as purchase and divide.
We always explicitly state the opportunity cost of doing something, or opportunity cost of choosing something. In your investment vs bank savings example, the opportunity cost of using the money to invest is \$40, and the opportunity cost of depositing the money in the bank is \$60 (assuming investing and saving are the top 2 most productive ...