A company incurs an ordering cost of $90 each time it places an order, regardless of...
A company incurs an ordering cost of $90 each time it places an order, regardless of the order size. The item’s cost is $25, and the annual carrying charge for the item is 20%. If the
annual demand for this item is 2,500 and the company’s order quantity (Q) is 300, calculate the total annualized cost of inventory.
Homework Answers
Total cost of inventory = Total Cost of carrying + Total cost of ordering
Total cost of carrying = Average Inventory * Carrying cost of unit
= (300/2)*(0.2*25)
= $750
Total cost of ordering = Total Number of orders * Ordering cost per order
= (2500/300)*90
= $750
Total cost = $750 + $750
= $1500
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