The manager of the Quick Stop Corner Convenience Store (which never closes)sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be theaverage daily total inventory costs, EXCLUDING the cost of the beer?
A)$2.00
B)$4.00
C)$1.28
D)$3.28
E)$2.56

Question

Quizplus · Accepted Answer

The average daily total inventory costs, excluding the cost of the beer, can be calculated by adding the daily ordering costs and the daily holding costs. First, calculate the daily ordering cost:- The manager orders 16 cases at a time, and since 4 cases are sold each day, an order lasts for 16/4 = 4 days.- The order cost is $8.00 per order, so the daily ordering cost is $8.00 / 4 days = $2.00.Next, calculate the daily holding cost:- The cost of the beer per six-pack is $0.80, so the cost per case (4 six-packs) is $0.80 * 4 = $3.20.- The daily holding cost rate is 5% of the cost of the beer, so the daily holding cost per case is $3.20 * 5% = $0.16.- On average, half of the inventory is held, so with 16 cases ordered at a time, the average inventory is 16 / 2 = 8 cases.- Therefore, the total daily holding cost is $0.16 * 8 = $1.28.Adding the daily ordering cost ($2.00) and the daily holding cost ($1.28) gives the average daily total inventory costs, excluding the cost of the beer, which is $2.00 + $1.28 = $3.28.

The Manager of the Quick Stop Corner Convenience Store (Which