The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average daily total inventory costs, EXCLUDING the cost of the resin

Respuesta :

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