Question

Store A purchases cases of fertilizer for its lawn-care business from a supplier who charges 5 tore A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Store A needs 2000 bags of fertilizer a year. Store A's annual holding costs are 30%. If Store A's order çantity is 50 cases, what is its average inventory level? (round the nearest integer)

Answer 1

The average inventory level of Store A is 125 bags.

Step-by-step explanation:

To determine Store A's average inventory level, we must consider the order quantity and holding costs. Let's proceed with the calculations.

Firstly, we need to determine the total number of bags of fertilizer Store A orders annually. Each case consists of five bags, and Store A's order quantity is 50 cases. Therefore, the total number of bags ordered annually can be calculated as follows: 50 cases * 5 bags per case = 250 bags.

Moving on to the average inventory level calculation. This is determined by dividing the order quantity by 2 and adding the safety stock. However, since no information regarding safety stock is provided in the question, we will solely consider the order quantity.

Hence, the average inventory level is obtained by dividing the order quantity by 2, resulting in 50 cases / 2 = 25 cases.

Considering that each case consists of 5 bags of fertilizer, the average inventory level can also be expressed in bags: 25 cases * 5 bags per case = 125 bags.

Therefore, Store A's average inventory level is approximately 125 bags.