Why carrying cost of average inventory should be taken for total cost instead of carrying cost per annum ?

Question

Jeel · Answer

for better understanding, here's a small graph. where the zigzag are the fluctuations in the stock during the year. and blue dotted line is the average stock you'd keep during the year

Jeel · Answer

When your storage place is stock filled, it won't be filled the whole year. Let's understand this with an example. For example : you keep stock of 3600 uts the whole year. But, you don't start refilling your stock after the sales of 1 or 2 uts. You wait for an optimum level to occur so that you would refill it. Aap humesha hi 3600 thodi rakhoge. Pure saal me agar 3600 sold hota hoga, toh kya pure saal ka ek sath le lenge? you keep only (3600/2) i.e 1800 approx stock. ki kabhi bhi saal me itna stock toh hoga hi hope it helps:)

Why carrying cost of average inventory should be taken for total cost instead of carrying cost per annum ?

3 answers

Ask your doubt in the Studycaller app