Ready Tees, an on line retailer of t-shirts, orders 100,000 t-shirts per year from its manufacturer. Ready plans on ordering t-shirts 12 times over the next year. Ready receives the same number of t-shirts each time it orders. The carrying cost is $0.10 per shirt per year. What is the annual carrying cost of the t-shirt inventory (rounded to the nearest dollar)?
A) $417
B) $834
C) $5,000
D) $10,000

Question

Quizplus · Accepted Answer

The annual carrying cost is calculated as the average inventory level multiplied by the carrying cost per unit. With 12 orders per year, the average inventory is 100,000/12/2 = 4,167 shirts. The carrying cost is 4,167 shirts * $0.10 = $416.70, rounded to $417.

Ready Tees, an on Line Retailer of T-Shirts, Orders 100,000