Andre Candess manages an office supply store.One product in the store is computer paper.Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year.There are 250 working days per year and the lead-time is 3 days.The cost of placing an order is $30, while the holding cost is $15 per box per year.If Andre orders 500 boxes each time he orders from his supplier, what would his total annual inventory cost be (holding cost plus ordering cost)?

Question

Quizplus · Accepted Answer

The total annual inventory cost can be calculated by adding the ordering cost and the holding cost. The ordering cost is determined by the number of orders placed in a year, which is the annual demand (10,000 boxes) divided by the order quantity (500 boxes), multiplied by the cost per order ($30). This gives (10,000 / 500) * $30 = 20 * $30 = $600. The holding cost is calculated by taking the average inventory level (order quantity / 2 = 500 / 2 = 250 boxes) multiplied by the holding cost per box per year ($15). This gives 250 * $15 = $3,750. Adding the ordering cost ($600) and the holding cost ($3,750) gives a total annual inventory cost of $4,350.

Andre Candess Manages an Office Supply Store