Answer:
$25
Explanation:
The computation of the inventory cost is shown below:
= Annual ordering cost + annual carrying cost
where,
Annual ordering cost is
= Daily demand ÷ order size × ordering cost per order
= 50 kilograms ÷ 1,000 kilograms × $100
= $5
And, the carrying cost is
= Order size ÷ 2 × carrying cost
= 1,000 kilograms ÷ 2 × $0.04
= $20
So, the total average inventory cost is
= $5 + $20
= $25
We simply applied the above formula