Asked by Aneri Patel on Jun 14, 2024
Verified
On an annual requirement of 100 items spread evenly throughout the year,a purchaser has an opportunity of buying all 100 units at a price of $100 each,or buying 10 units at a time at a price of $130.If the inventory carrying cost is 20 percent per year and assuming no ordering costs:
A) buying 100 at a time will save the company $2,130 per year.
B) buying 100 at a time will save the company $2,260 per year.
C) buying 100 at a time will save the company $3,000 per year.
D) buying 10 at a time will save the company $1,000 per year.
E) buying 10 at a time will save the company $870 per year.
Inventory Carrying Cost
The total expenses associated with holding and storing unsold goods, including warehousing, insurance, depreciation, and opportunity costs.
Annual Requirement
The total quantity or amount of a particular resource or input that is needed by an organization or project over the course of a year.
Ordering Costs
Expenses incurred in placing and processing orders for goods or services, including costs associated with ordering, receiving, and inspecting items.
- Understand the considerations and calculations involved in making inventory purchasing decisions.
Verified Answer
PP
Prishen Pillay SamooJun 20, 2024
Final Answer :
A
Explanation :
Buying 100 at a time: Total cost = 100 * $100 = $10,000. Average inventory = 50 units (since they are spread evenly throughout the year), carrying cost = 50 * $100 * 20% = $1,000. Total cost = $10,000 + $1,000 = $11,000. Buying 10 at a time: Total cost = 100 * $130 = $13,000. Average inventory = 5 units, carrying cost = 5 * $130 * 20% = $130. Total cost = $13,000 + $130 = $13,130. Savings = $13,130 - $11,000 = $2,130.
Learning Objectives
- Understand the considerations and calculations involved in making inventory purchasing decisions.