Brackman Corporation consumes 1,200,000 gallons of Material Y per year.Its order quantity is 30,000 gallons.It maintains a safety stock of 10,000 gallons and its annual carrying costs are $0.25 per gallon per year.If the ordering cost is $20 per order,what are the total annual ordering costs?

Question

Quizplus · Accepted Answer

First, we need to calculate the total number of orders placed in a year:
Total demand = 1,200,000 gallons
Order quantity = 30,000 gallons
Therefore, number of orders = Total demand / Order quantity = 1,200,000 / 30,000 = 40 orders
Next, we need to calculate the total annual carrying cost:
Carrying cost per gallon per year = $0.25
Total gallons = 10,000 (safety stock) + 30,000 (order quantity) / 2 (average inventory) = 25,000 gallons
Total carrying cost = Carrying cost per gallon per year * Total gallons = $0.25 * 25,000 = $6,250
Finally, we can calculate the total annual ordering cost:
Ordering cost per order = $20
Total orders = 40
Total ordering cost = Ordering cost per order * Total orders = $20 * 40 = $800
Therefore, the best choice is B, with total annual ordering costs of $800.

Brackman Corporation Consumes 1,200,000 Gallons of Material Y Per Year