1) Andre Candess manages an office supply store. One product in the store is com

Question

1) Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. If Andre orders 500 boxes each time he orders from his supplier, what would his total annual inventory cost be (holding cost plus ordering cost)?

Please show me your work, no work no points

Explanation / Answer

Ordering cost = number of orders*cost of placing an order

Number of orders = annual demand/no. of boxes ordered each time = 10,000 boxes/500 = 20 orders

Thus total ordering cost = 20 orders*$30 per order = $600

Holding cost: average inventory = Q/2 = 500/2 = 250 boxes. Holding cost per box = $15.

Thus total holding cost = average inventory*holding cost per box = 250 boxes*$15 = $3,750

Inventory cost = holding cost+ordering cost

= 3750+600

= $4,350

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