Question

During drought conditions, the demand for cans spikes to an annualized rate of 29,400 cans per year and the price rises to $10 per can. If the ordering cost per lot is $1 and the holding cost is calculated as $19, what is the total cost of ordering and holding cans for the year?

1) $29,400
2) $294,000
3) $294,019
4) $294,019,000

Answer 1

The total cost of ordering and holding cans for the year is $588,000.

Step-by-step explanation:

To calculate the total cost of ordering and holding cans for the year, we need to consider the ordering cost and the holding cost. The ordering cost per lot is given as $1. So, if the annualized rate of cans is 29,400, the total ordering cost would be 29,400/lot. The holding cost is calculated as $19, which would be multiplied by the number of lots ordered.

Therefore, the total ordering cost would be (29,400/lot) * $1 = $29,400. And the total holding cost would be (29,400/lot) * $19 = $558,600. Adding these two costs, the total cost of ordering and holding cans for the year would be $29,400 + $558,600 = $588,000. Thus, the correct option is 2) $588,000.