Carmel Company uses 810 units of a part each year. The cost of placing one order is $10; the cost of carrying one unit in inventory for a year is $4.
-Refer to the Figure.Benton has decided to begin ordering 60 units at a time.What is the average annual ordering cost of Benton's new policy?
A)$60
B)$135
C)$150
D)$185

Question

Quizplus · Accepted Answer

To calculate the average annual ordering cost, we need to find the total number of orders placed in a year using the new policy.

Assuming the demand is evenly spread throughout the year, the number of orders would be:

Number of orders = Annual demand / Quantity ordered per order
Number of orders = 810 / 60
Number of orders = 13.5

Since we cannot place a decimal number of orders, we would round up to 14 orders per year.

The annual ordering cost would be:

Annual ordering cost = Number of orders x Cost per order
Annual ordering cost = 14 x $10
Annual ordering cost = $140

Therefore, the average annual ordering cost of Benton's new policy is $140, which is closest to option B: $135.

Carmel Company Uses 810 Units of a Part Each Year