If the annual demand is 11,500, the order quantity is 1,750, the annual holding costs is 5.50 per unit, and the ordering cost per order is is 200, what is the total of carrying and ordering costs?
Expert Answer
Ordering cost
Number of orders in a year
= Annual demand / Quantity per order
= 11,500 / 1,750
= 6.57 or 7 orders (since orders cannot be in fraction)
So, total ordering costs
= Number of orders x Ordering cost per order
= 7 x $200
= $1,400
Carrying cost of average inventory
= Order quantity / 2 x holding cost per unit per annum
= 1,750 / 2 x
OR
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