Question

Samâs Auto Shop services and repairs a particular brand of foreign automobile. Sam uses oil filters throughout the year. The shop operates fifty-two weeks per year and weekly demand is 150 filters. Sam estimates that it costs $20 to place an order and his annual holding cost rate is $3 per oil filter. Currently, Sam orders in quantities of 650 filters. Calculate the total annual costs associated with Samâs current ordering policy

Total annual costs = $

Answer 1

The answer is $23640.

Explanation:

The shop operates fifty-two weeks per year and weekly demand is 150 filters.

So, for 52 weeks the number of filters needed are =
`52*150=7800`

Sam estimates that it costs $20 to place an order and his annual holding cost rate is $3 per oil filter.

He orders in quantities of 650 filters. Means for the year he will order
`7800/650=12` quantities

Total annual costs = ordering cost + holding cost

Ordering cost for 12 batches =
`20*12=240` dollars

Annual holding cost =
`7800*3=23400` dollars

Total cost will be =
`240+23400=23640` dollars