Ready Tees,an online retailer of t-shirts,orders 80,000 t-shirts per year from its manufacturer.Ready will order t-shirts 12 times over the next year.Ready receives the same number of t-shirts each time it orders.The carrying cost is $0.25 per shirt per year.What is the annual carrying cost of the t-shirt inventory (rounded to the nearest dollar)?

Question

Quizplus · Accepted Answer

To calculate the carrying cost, we need to use the formula:

Carrying Cost = Average Inventory Level x Carrying Cost per Unit

The average inventory level can be calculated as:

Average Inventory Level = Order Quantity / 2

Since Ready orders 80,000 t-shirts per year and orders 12 times, the order quantity is 80,000 / 12 = 6,666.67 t-shirts per order (rounded up to the nearest shirt).

Therefore, the average inventory level is:

Average Inventory Level = 6,666.67 / 2 = 3,333.33

The carrying cost per unit is given as $0.25, so the carrying cost for the year is:

Carrying Cost = 3,333.33 x $0.25 = $833.33

Rounded to the nearest dollar, the annual carrying cost is $833. Therefore, the best choice is (B).

Ready Tees,an Online Retailer of T-Shirts,orders 80,000 T-Shirts Per Year