Specialty Manufacturing requires 5400 gadgets per year for production. The firm decides to order 120 gadgets at a time. The costs of ordering are $50 per order and carrying costs per gadget are $2. Annual carrying costs are:

Question

Quizplus · Accepted Answer

The annual carrying cost is calculated as the average inventory level multiplied by the carrying cost per unit. The average inventory level is half the order quantity, which is 120/2 = 60 gadgets. The carrying cost per gadget is $2. Therefore, the annual carrying cost is 60 gadgets * $2/gadget = $120, which is not listed among the given options.

Specialty Manufacturing Requires 5400 Gadgets Per Year for Production