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Inventory Costing

When discussing inventory costing, one of the major elements that is discussed is the optimal order quantity. The optimal order quantity in inventory costing is achieved when the inventory set up cost is equal to the inventory holing cost. These two items are measured per unit of time in each case. When such a point is reached, the organization is able to minimize the costs that are associated with production set-ups and carrying cost for the inventory. In regards to the underlying assumptions in optimal order quantity, the organization is supposed to make an order on inventory when it is zero so as to reduce the relevant costs (Carpenter, Boyle & Ren, 2012). As a result, the demand must remain the same for the whole year.

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