Fiber Technology, Inc., manufactures glass fibers used in the communications ind
ID: 2514553 • Letter: F
Question
Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-pound canisters for $103 each. The firm uses 5,200 canisters per year. The controller estimates that it costs $158 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $4.80 per canister.
Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 650, 1,300, and 2,600 canisters
Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 650, 1,300, and 2,600 canisters
Order size 650 1300 2600 Number of orders Ordering cost Average inventory Holding costs Total annual costsExplanation / Answer
ORDER SIZE 650 1300 2600 Annual demand 5200 5200 5200 Number of orders (Annual Demand/Order Size) 8 4 2 Ordering cost at ordering cost $158 per order 1264 632 316 Average Inventory (Order Size/2) 325 650 1300 Holding cost at storing cost $ 4.80 per unit 1560 3120 6240 Total Annual cost Ordering cost+Holding cost 2824 3752 6556
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