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ID: 2564993 • Letter: I
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ignmentMain.dotinvoker assignments&takeAssignmentSessionlocator; assignment-take&inprogress-false; eBook Video Calculator Ordering Cost, Carrying Cost, and Total Inventory-Related Cost La Cucina Company sells kitchen supplies and housewares. Lava stone is used in production of molcajetes (mortars and pesties used making of guacamole) and is purchased from external suppliers. Each year, 7,000 pounds of lava stone is used; it of 500 pounds. It costs la Cucina $5 to place the order, and carrying cost is $2 per pound per year. is currently purchased in lots Required: How many orders for lava stone does La Cucina place per year? Round your answer to the nearest whole amount orders per year 2. What is the total ordering cost of lava stone per year? 3. What is the total carrying cost of lava stone per year? 4. What is the total cost of La Cucina's inventory policy for lava stone per year? 4o 8 9 0 6Explanation / Answer
The following is the information provided in the question :
Annual quantity requirement of lava stone is 7000 pounds.
Size of batch, or order quantity per order is 500 pounds.
Cost of placing a single order is $5.
Carrying cost of inventory is $2 per pound.
ANS 1 : NO. OF ORDERS REQUIRED TO BE PLACED :
As noted above, total quantity requirement per year is 7000 pounds and 500 pounds can be ordered in one go.
Hence, by simple division, we need to place 14 (7000/500) orders during the year.
ANS 1 : 14 orders.
ANS 2: TOTAL ORDERING COST :
Total ordering cost = no. of orders per year * ordering cost per order
= 14*5 = $70.
No. of orders in the year is calculated in (1) above. and ordering cost per order is given as $5.
ANS 2 : hence, the total ordering cost is $70.
ANS :3 CARRYING COST OF STONE PER YEAR :
Carrying cost of inventory is the major expense in inventory management. we can formulate the carrying cost in a simple equation form as below :
Carrying cost of inventory = yearly inventory requirement * carrying cost per unit of inventory.
substituting the figures given in the above equation, we get carrying cost of inventory as $14,000. (7000*2)
ANS 3 : Total carrying cost of inventory is $14,000.
ANS 4: TOTAL COST OF INVENTORY POLICY :
Total cost of inventory policy is the sum of ordering cost and the carrying cost of inventory. Both these figures have been calculated above.
Hence, the total cost of inventory policy is $14,070. (70+14000).
ANS 4 : Total cost of inventory policy of the company is $14,070.
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