Question

DB sells 500 bottles of supplements per week at $ 75 per bottle. DB's supplier charges DB $ 20 per order and $ 40 per bottle. DB's annual holding cost percentage is 30 % of unit cost. DB operates 50 weeks in a year. What is DB's total annual ordering and holding cost , if DB orders 200 bottles at a time?

Answer 1

Answer:

$3,700

Explanation:

total annual demand = 500 x 50 = 25,000

if 200 units are purchased at a time, then they need to make 25,000 / 200 = 125 orders per year.

annual ordering costs = 125 x $20 = $2,500

average inventory = 200 / 2 = 100

annual holding cost = 100 x $40 x 30% = $1,200

total = $2,500 + $1,200 = $3,700