A local distributor for a Belgian chocolate manufacturer expects to sell 12,000 cases of chocolate truffles next year.The annual holding costs for the truffles are $16 per case per year.The ordering cost is $60 per order.The distributor operates 320 days a year.In this example,______.
A)the total holding costs are given by 12,000 divided by $16
B)the total holding costs are given by 150 times $16
C)the total holding costs are given by 12,000 times $16
D)the total holding costs are given by 300 divided by $16

Question

Quizplus · Accepted Answer

The total holding costs are calculated by taking the average inventory level (which is half of the order quantity) and multiplying it by the holding cost per unit. The Economic Order Quantity (EOQ) formula is used to find the order quantity, which is approximately 150 in this case, leading to the total holding costs being 150 times $16.

A Local Distributor for a Belgian Chocolate Manufacturer Expects to Sell