Question

Effective controls relevant to the efficiency of purchases will result in proper evaluation of the time for ordering merchandise. When making this evaluation, the purchasing company should give primary consideration to

Answer 1

The trade-off between the cost of owning and storing excess merchandise and the risk of loss by not having merchandise on hand.

Step-by-step explanation:

Effective management of costs when purchasing inventory for sale must be well planned by a business.

Economic order quantity calculation is used to minimise cost of storing excess merchandise and cost of ordering merchandise.

The model is based on assumption of constant demand for goods and effectively avoids stock outs. This is done by using probability to estimate the loss that will be incurred by not having stock on hand.

This consideration between storage cost and cost of not having stock will guide the business to make stock ordering choices that will minimise cost