**2.4 Shortage cost**

The cost associated with the items for running out of stock. That is, there is no inventory in stock. This cost includes the loss of potential profit through sales of items and loss of goodwill. It will cause the permanent loss of customers, which may cause the lost profit in future sales.

#### **Figure 1.** *Graphical representation of optimal order size and minimum total annual cost.*

#### **2.5 Revenue cost**

The expensive cost in inventory incurred when an organization earns revenue by selling its products/services to the customers. It is the total cost of production and delivering a product or service to consumers. See Ref. [1]

If number of orders is increased, the ordering cost will be high, but the holding cost may be low. If the number of orders is decreased, the ordering cost will be low, but the holding cost may be high. Optimal order quantity is that order quantity that minimizes the total annual cost of ordering inventory and cost of holding inventory. See Ref. [2]. If the ordering cost and holding cost are equal, then the total annual cost is minimum as shown in **Figure 1**.
