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Should we be using cost of capital in calculating holding costs of consumable inventory?

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  • Bruce P. Christensen
  • Mark A. Fryman

Abstract

The DOD directs the usage of 10% of item cost as the cost of capital in the calculation of inventory holding costs. This 10% cost is not totally justified and a complete review must be accomplished to bring this factor to a meaningful and more useful value. The current logic supporting a 10% cost of capital results in a continuing perturbation which forces the Air Force to operate in a less than efficient mode when using the economic order quantity for consumable purchases.

Suggested Citation

  • Bruce P. Christensen & Mark A. Fryman, 1989. "Should we be using cost of capital in calculating holding costs of consumable inventory?," Naval Research Logistics (NRL), John Wiley & Sons, vol. 36(2), pages 167-177, April.
    • Handle: RePEc:wly:navres:v:36:y:1989:i:2:p:167-177
    DOI: 10.1002/1520-6750(198904)36:23.0.CO;2-L
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    Cited by:

    1. Klein Haneveld, Willem K. & Teunter, Ruud H., 1998. "Effects of discounting and demand rate variability on the EOQ," International Journal of Production Economics, Elsevier, vol. 54(2), pages 173-192, January.

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