Question

firm a's demand for a product is 15 untis per month. its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 15 untis or higher. what is firm a's annual holding cost if it orders at a quantity of 28 untis

Answer 1

Firm A's annual holding cost for ordering 28 units is approximately $94.

Step-by-step explanation:

Firm A's holding cost refers to the cost of storing and maintaining inventory for a certain period of time. It is calculated by multiplying the average inventory level by the holding cost per unit. In this case, Firm A orders 28 units of the product.

Therefore, the annual holding cost can be calculated as follows:

Annual Holding Cost = Average Inventory Level * Holding Cost per Unit * Number of Orders per Year

The average inventory level can be calculated as (Quantity Ordered / 2) + (Quantity Ordered / 3) = 28 / 2 + 28 / 3 = 14 + 9.33 = 23.33 units

Since there is a 10% discount for orders of 15 units or higher, the price per unit would be $10 - ($10 * 10%) = $10 - $1 = $9

Therefore, the annual holding cost would be 23.33 units * $9/unit * (12 months / 28 units) = $9 * 12 * 23.33 / 28 = $93.996 or approximately $94.