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

Bruce P. Christensen and Mark A. Fryman

Naval Research Logistics (NRL), 1989, vol. 36, issue 2, 167-177

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.

Date: 1989
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https://doi.org/10.1002/1520-6750(198904)36:23.0.CO;2-L

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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:36:y:1989:i:2:p:167-177

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