Question

A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are used at a steady rate during the 240 days a year that the plant operates. Annual holding cost is $3 per silicon chip. The optimal ordering quantity is 1600 chips per order. a. What is the total annual carrying cost under the optimal inventory management policy?

Answer 1

$2,400

Step-by-step explanation:

The computation of the total annual carrying cost is shown below:

The total Annual Carrying cost = Average Inventory × Holding cost per chip

= (1,600 chips ÷ 2) × $3

= $2,400

First we simply find out the average inventory by dividing the optimal ordering quantity by 2 and then it multiplied with the holding cost per chip so that the correct amount could arrive