Question

Compute the total annualized inventory holding and ordering costs when the cost per order (S) is $75, the annual demand (D) is 120,000, the annual carrying charge (i) is 25%, the order quantity (Q) is 1200, and the item’s cost is $50

Answer 1

total annualized inventory holding and ordering costs = $15,000

Step-by-step explanation:

total number of orders per year = 120,000 units / 1,200 units per order = 100 orders per year

total ordering cost per year = cost per order x number of orders per year = 100 orders per year x $75 per order = $7,500

average inventory = 1,200 units / 2 = 600 units

annualized inventory holding costs = 600 units x 25% holding cost x $50 cost per unit = $7,500