Total inventory costs formula
Total inventory costs will be as follows:
Total inventory costs = Purchase price cost + carrying costs + stock-out cost + order costs.
Total inventory costs = Purchase price costs + "normal~ carrying costs (Q/2 H) + Buffer Stock holding costs (B x H) + Stock-out costs + order costs.
Total inventory costs = D.C + Q/2.H + (B x H) + stock-out costs + D/Q.Co
Where:
D = Total annual demand
H = Holding costs per unit
B = Buffer stock
Q = EOQ