Ready Tees,an online retailer of t-shirts,orders 100,000 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 $0.10 per shirt per year.The order cost is $500 per order.What is the annual ordering cost of the t-shirt inventory (rounded to the nearest dollar)?
A)$5,000
B)$6,000
C)$10,000
D)$12,000

Question

Quizplus · Accepted Answer

First, we need to calculate the optimal order quantity (EOQ) using the formula:

EOQ = sqrt((2OD)/H)

Where:
O = Annual demand (100,000 t-shirts)
D = Ordering cost per order ($500)
H = Holding cost per unit per year ($0.10)

EOQ = sqrt((2*100,000*500)/0.10) = 10,000 t-shirts per order

Since Ready orders 12 times per year, the annual order quantity will be:

Annual order quantity = EOQ * (O/E)

Where:
E = Number of orders per year (12)

Annual order quantity = 10,000 * (100,000/12,000) = 83,333 t-shirts per year

Now we can calculate the annual ordering cost using the formula:

Annual ordering cost = D * (O/EOQ)

Annual ordering cost = $500 * (100,000/83,333) = $6000

Therefore, the annual ordering cost of the t-shirt inventory is $6,000. The best choice is B.

Ready Tees,an Online Retailer of T-Shirts,orders 100,000 T-Shirts Per Year