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Applied decision Making Discussion 4

Applied decision Making Discussion 4

Q Figure 6.3 on page 191 shows inventory costs versus order quantity with emphasis on the total cost, ordering cost, and the carrying cost. Discuss the significance of the shape of each curve and how it can be described in “plain language.” The curves also provide a graphical representation of the optimal order quantity. Discuss the significance of this point and why it coincides with the point of minimum total cost.

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The carrying cost curve represents the carrying cost. Carrying cost can be referred to as holding inventory costs and maintenance is included particularly in regard to costs of storage and perishable items; less tangible expenses and insurance like costs of opportunity, loss due to theft. There is a decrease in per unit cost of carrying with the increase in units’ number (Quantitative Analysis for Management, 2017).