Answer:
$2750
Explanation:
Given that:
Demand for the component = 70 units each day.
Opening days in a year = 250
Reorder time rate = 10 dyas
Cost of product = $14.00
Carrying cost = 20% = 0.2
Order cost = $30.00
So if the company decides to order 1,750 units each time it places an order, the objective of this question is to find the total annual cost of this policy.
The total annual cost = total inventory cost + total ordering cost
where:
Total inventory cost = (ordering quantity/2)*unit holding cost
Total inventory cost = (1750/2) × (0.2 × 14)
Total inventory cost = 2450
Total ordering cost = (annual demand/ordering quantity) × ordering cost
Total ordering cost = (70 × 250/1750) × 30
Total ordering cost = ( 70 × 0.1428571429) × 30
Total ordering cost ≅ 300
Total annual cost = 2450 + 300
Total annual cost = $2750
