Question

C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges C&A $30 per order and $50 per bottle. C&A's annual holding cost percentage is 40%. Assume C&A operates 50 weeks in a year. What is C&A's total ordering and holding cost per year if C&A orders 500 bottles at a time? $11,800 $5036 $6800 $10,036

Answer 1

Answer: c---$6,800

Step-by-step explanation:

Annual Demand = Weekly Demand x Number of weeks in operation

= 600bottles x 50 = 30,000 Bottles

a)Annual ordering cost = (Annual Demand /Quantity) X Ordering cost= (30000/500)*30 = $1,800

B) Holding cost per unit = Purchase Price per bottle x Holding cost percentage

= $50 x 40% = $20 per unit

Annual Holding cost = Average Inventory x Holding cost per unit per annum

But Average Inventory = Size of order / 2 = 500 / 2 = 250 Bottles

Annual Holding cost =250 x $20 = $5,000

Therefore, total ordering and holding cost per year

= $1,800 + $5,000

= $6,800