Karloff Medical Supply maintains an average inventory of 2,000 human skulls for sale to medical schools and ﬁlmmakers. The carrying cost per skull per year is estimated to be $5. Boris places an
Order for 10,000 skulls on the ﬁrst of each month and the order cost is $75. What are the total
Restocking costs under the current system?

Question

Quizplus · Accepted Answer

First, we need to calculate the restocking cost for each order:
Carrying cost per unit per year = $5
Order quantity per month = 10,000
Therefore, average inventory = 2,000
Restocking cost = (2,000/10,000) x $75 + (2,000 x $5) = $15 + $10,000 = $10,015
The company places 12 orders per year (one on the first of each month), so the total restocking cost would be:
Total restocking cost = 12 x $10,015 = $120,180
Therefore, the answer is C, $900.

Karloff Medical Supply Maintains an Average Inventory of 2,000 Human