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 $28.00 per DVD; DVDs are shipped in packages of 68. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 321,000 DVDs at a rate of 6100 DVDs per week. DVD Mart earns 11% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

What are the relevant total costs?
A) $18,758
B) $84,917
C) $15,471
D) $13,124

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 $28.00 per DVD; DVDs are shipped in packages of 68. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 321,000 DVDs at a rate of 6100 DVDs per week. DVD Mart earns 11% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

What are the relevant total costs?

What are the relevant total costs?
A) $18,758 
B) $84,917 
C) $15,471 
D) $13,124

Quizplus · Accepted Answer

EOQ =
 11ea1398_f0ea_87a0_a1e4_e7f9c636c05c_TB3027_00 
EOQ = 72.31 packages
Annual relevant carrying costs = 11ea1398_f0ea_aeb1_a1e4_ddd6ea59398d_TB3027_11 = $7735.00
Annual relevant ordering costs = [(321,000 / 68) × $118.50] / 72.31 = $7735.99
Relevant total costs = $7735.00 + $7736 = $15,471

Globe Inc Is a Distributor of DVDs