Question

Paul's Papers is a large distributor of paper used in copy machines and printers. The manufacturer of Paul's most popular product, Perfect Printing Paper, is located just three miles from Paul's DC, and has a lead time of zero days. Hence, for this product Paul's Papers holds no safety stock. In order to get the best prices Paul's Papers orders 22 pallets (a full truckload) of Perfect Printing Paper every time it places an order. Paul's Papers pays $17.00 holding cost per pallet per year for this product.

Required:
How much will Paul's Papers pay in total annual holding costs for Perfect Printing Paper?

Answer 1

$187

Step-by-step explanation:\

Average cycle inventory = Average of maximum inventory and minimum inventory = (22 + 0) / 2 = 11 pallets

Annual holding cost for Perfect Printing Paper = Average cycle inventory * Holding cost per pallet per year

Annual holding cost for Perfect Printing Paper = 11 pallets * $17.00

Annual holding cost for Perfect Printing Paper = $187