Custom Computers, Inc. assembles custom home computer systems. The heat sinks ne
ID: 448956 • Letter: C
Question
Custom Computers, Inc. assembles custom home computer systems. The heat sinks needed are bought for $12 each and are ordered in quantities of 650 units. Annual demand is 5200 heat sinks, the annual inventory holding cost rate is $3 per unit, and the cost to place an order is estimated to be $50. Calculate the following:
Calculate the following:
(a) Average inventory level units
(b) The number of orders placed per year orders
(c) The total annual inventory holding cost $
(d) The total annual ordering cost $
(e) The total annual cost $
Explanation / Answer
Given
Annual demand (D) = 5200 units
Order quantity (Q) = 650 units
Holding cost rate per unit (H) = $3
Cost to place an order (S) = 50
Cost = $12 each
a. Average inventory level = Q/2
Average inventory level = 650/2
Average inventory level = 325 Units
b. The number of orders placed per year
Total order placed in a year = D/Q
= 5200/650 = 8
Total order placed in a year = 8 orders per year
c. The total annual inventory holding cost
Total annual inventory holding cost = (Q/2)*H
= (650/2)*$3
= (325)*$3
= $975
Total annual inventory holding cost = $ 975
d. The total annual ordering cost
Total annual ordering cost = (D/Q)(S)
= (5200/650)(50)
= (8)($50)
Total annual ordering cost = $400
e) The total annual cost
Total annual cost = (annual inventory holding cost) + (Total annual ordering cost)
= $975 + $400
Total annual cost = $1375 ( in this we didnt add total heat sink value which is 62,400)
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