the demand for a particular part called SKU 005 is 1,200 units a year. The cost
ID: 376391 • Letter: T
Question
the demand for a particular part called SKU 005 is 1,200 units a year. The cost of one SKU 005
is $40.00. It costs $60.00
to place an order SKU 005, and the user of SKU 005 has a per year
inventory carrying cost of 25% of unit cost. Assume that there are 250 working days in the year
where SKU 005 is used. Please answer the following three questions, based on this informati
on.
8
.
What is the combined annual holding and ordering cost of an order size of 200 units for SKU
005?
a) $825
b)
$1200
c) $1360
d) $1697
e) $2050
I know the answer is $1360 but how do I get it?
Explanation / Answer
Annual holding cost :
Annual holding cost = average inventory level x holding cost per unit per year
= order quantity/2 x holding cost per unit per year
=(200/2) x (25% * 40)
=100 x 10 = 1000
Annual ordering cost = no. of orders placed in a year x cost per order
= annual demand/order quantity x cost per order
=(1200/200) x 60
=6 x 60 = 360
Total annual combined cost = Annual holding cost + Annual ordering cost
= 1000 + 360 = 1360
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.