Question

Ali had previously calculated the Economic Order Quantity required to efficiently control costs at his company. His calculations proved accurate in the short term. However, after a certain point, it was found that his calculations differed from the actual costs. What could have happened at this point to create a mismatch between Ali’s calculations and the actual expense?

Answer 1

Answer:

The demand for orders, ordering cost or holding cost, one of them is imperfectly calculated.

Explanation:

Economic order quantity is used to minimise the ordering and holding cost. It helps to efficiently calculate the required inventory and the cost of holding that inventory. Overall, if the demand for orders, holding cost or ordering cost does not match the initial expectation, the actual cost will exceed the expected cost. So, it is important to calculate all three factors for better calculations.