Answer:
$1,000
Step-by-step explanation:
For computing the total cost of ordering cost and the carrying cost first we have to find out the economic order quantity is shown below:
![= \sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}](https://img.qammunity.org/2021/formulas/business/college/42bowpz0x3lb377fsobb7oy296bwku1bfy.png)
where,
Annual demand = 5,000
Ordering cost per order = $5
Holding cost per bag per year = $20
After solving this the units is 50
Now the total cost is
= Annual ordering cost + Annual carrying cost
= Annual demand ÷ Economic order quantity × ordering cost per order + Economic order quantity ÷ 2 × carrying cost per unit
=5,000 ÷ 50 × $5 + 50 ÷ 2 × $20
= $500 + $500
= $1,000