Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $25.00 per DVD; DVDs are shipped in packages of 63. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 314,000 DVDs at a rate of 6600 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

What are the annual relevant ordering costs?
A) $91,977
B) $11,949
C) $8449
D) $8353

Question

Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $25.00 per DVD; DVDs are shipped in packages of 63. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 314,000 DVDs at a rate of 6600 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

What are the annual relevant ordering costs?

What are the annual relevant ordering costs?
A) $91,977 
B) $11,949 
C) $8449 
D) $8353

Quizplus · Accepted Answer

EOQ =
 11ea1398_f0ea_879b_a1e4_27d6842aaf0e_TB3027_00 
EOQ = 69.90 packages
Annual relevant ordering costs = [(314,000 / 63) × $118.50] / 69.90 = $8449

Globe Inc Is a Distributor of DVDs