Answer:
d. $1000
Explanation:
Annual demand, D = 1000 boxes
Ordering cost, Co = $50
Holding cost = $10 per box per year
Economic Order Quantity (EOQ) is calculated as;
EOQ = SQRT [(2 x D x Co) / H]
where,
D = Annual demand
Co = Ordering cost
H = Holding cost
Putting the given values in the above formula, we get;
EOQ = SQRT [(2 x 1000 x 50) / 10]
EOQ = 100 boxes
Total ordering cost is calculated as;
Total ordering cost = D/EOQ x Co
Total ordering cost = (1000/100) x 50
Total ordering cost = $500
Total holding cost is calculated as;
Total holding cost = EOQ/2 x H
Total holding cost = (100/2) x 10 0
Total holding cost = $500
The minimum annual amount of these combined costs the gift shop could pay is;
Minimum annual amount = Total ordering cost + Total holding cost
= $500 + $500
= $1,000
Therefore, The minimum annual amount of these combined costs the gift shop could pay is $1,000.
