Asked by
Kitti-Talei Drodrolagi
on Nov 07, 2024
Verified
L.L.B. sells 86,500 units a year. The average order is for 6,000 units. Each new order arrives just as the old order is being depleted. The company does not hold any safety stock. Each order incurs a fixed cost of $48. The carrying cost of inventory is $2.21 per unit per year. What is the total cost of inventory for one year?
A) $7,239
B) $7,322
C) $9,108
D) $13,952
E) $14,021
Total Cost
The aggregate of all costs, whether fixed or variable, incurred in producing goods or services.
Carrying Cost
The total expenses associated with maintaining inventory, encompassing storage costs, insurance fees, and taxes.
Fixed Cost
Costs that do not fluctuate in relation to the level of production or sales, such as rent or salaries.
- Work out the economic order quantity (EOQ) for managing stocks and understand its consequences on cost allocation.
- Understand the role of carrying and ordering costs in inventory management and their implications for business operations.
Verified Answer
BM
Learning Objectives
- Work out the economic order quantity (EOQ) for managing stocks and understand its consequences on cost allocation.
- Understand the role of carrying and ordering costs in inventory management and their implications for business operations.