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?

Answer 1

Answer: $6,800

Explanation:

The following can be deduced based on the information above:

The annual requirement will be the weekly demand multiplied by the number of operational weeks. This will be:

= 600 x 50

= 30,000 Bottles

Then, the number of orders will be the annual demand divided by the order size. This will be:

= 30,000 ÷ 500

= 60

Then, we calculate the ordering cost which will be the number of orders multiplied by the ordering cost per order. This will be:

= 60 x $30

= $1,800

The average inventory will be the lot size divided by 2. This will be:

= 500 / 2

= 250 Bottles

Then, the holding cost per unit will be the price multiplied by the percentage of the holding cost. This will be:

= $50 x 40%

= $50 × 0.4

= $20 per unit

Holding cost of thenverage inventory will be the average inventory multiplied by the holding cost per unit. This will be:

= 250 x $20

= $5,000

Therefore, C&A's total ordering and holding cost per year if C&A orders 500 bottles at a time will be:

= $1,800 + $5,000

= $6,800