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a company purchase 5000 units per quarter at throughout the year, each order placed with the supplier incurs a delivery charge of $20, the annual cost of holding one unit in inventory is $5
what is minimum total of the inventory costs ( order cost plus holding costs ) per year ?
answer is 2000
but my working answer is $1250 did not match the answer $2000
2 x 20,000 x 20 / $5 = 400 units
order cost
20000 / 400 = 50 X $5 =$250
holding cost
400 / 2 = 200 x $5 = 1000please explain ?
How did you get the order cost to be $250????
The number of orders is 20000/400 = 50. The cost of each order is $20. So the total order cost is 50 x 20 = $1000.
Why have you multiplied the number of orders but the cost of holding one unit in inventory? It makes no sense.
i think i was nervous to do this mock exam & my weaknesses gone one mark , hope will not happen in exam ,I should come back to check the calculations.
Sorry, it does not make sense for you.
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