Question

Question: Discuss the assumptions that are inherent in production setup cost, ordering cost, and carrying costs. How valid are they?

Short answer

Answer

In unreal times, all of the assumptions are unrealistic and invalid. All of the assumptions are invalid since it is not conceivable for every point.

Step-by-step solution

Assumptions that are inherent in production setup cost, ordering cost, and carrying costs.

1. It is assumed that the demand for the full Ordering of an existing product is the same and stable throughout time.
2. All orders will be filled, and there will be no backorders.
3. The cost of setting up the ordering cost is fixed.
4. The unit price of the product is constant.
5. The lead time will also be consistent.

Production setup cost, ordering cost, and carrying cost

Inventory is made up of raw materials, work-in-progress, and finished commodities in accounting terms. In the day-to-day operations of a firm, inventory may typically refer to anything from pipes to pies to high-end automobiles. Whatever perspective you take on inventory, one thing is certain: it appears on your company's balance sheet as an asset.

However, the actual inventory expenses for your organization are sometimes neglected. Aside from the initial purchase price, your inventory expenses comprise the cost of making each purchase as well as the cost of holding and maintaining each item until it is sold or written off. Inventory purchase, storage, and administration all incur significant expenses. To establish the true cost of your inventory, you must first understand the three inventory costs: ordering, carrying, and shortfall.