Answer the following question(s) using the information below:
Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72, FOB destination. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase order lead time is one week. The following cost data are available:

-If Garry's Golf Supplies makes an order (1/12 of annual demand) once per month, what are the relevant total costs?

Question

Answer the following question(s) using the information below:
Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72, FOB destination. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase order lead time is one week. The following cost data are available:
 
-If Garry's Golf Supplies makes an order (1/12 of annual demand) once per month, what are the relevant total costs?

Quizplus · Accepted Answer

Order Quantity = Annual Demand/12 = 172,800/12 = 14,400 balls/month = 14.400/72 = 200 cartons per month
RTC = Ordering Costs + Carrying Costs
Carrying Cost per carton = price × invest rate + insurance/handling
Carrying Cost per carton = ($.75 × 72 × 12%) + $0.77 = $7.25
RTC = (12 × $125.00) + ((200/2) × $7.25) = $1,500 + $725 = $2,225.00

Answer the Following Question(s) Using the Information Below