Custom Computers, Inc. assembles custom home computer systems. The heat sinks ne

Question

Custom Computers, Inc. assembles custom home computer systems. The heat sinks needed are bought for $12 each and are ordered in quantities of 1,200 units. Annual demand is 5,300 heat sinks, the annual inventory holding cost rate is $3 per unit, and the cost to place an order is estimated to be $48.

Calculate average inventory level.

Calculate number of orders placed per year.

Calculate total annual ordering cost.
$

Calculate total annual cost.
$

Custom Computers, Inc. assembles custom home computer systems. The heat sinks needed are bought for $12 each and are ordered in quantities of 1,200 units. Annual demand is 5,300 heat sinks, the annual inventory holding cost rate is $3 per unit, and the cost to place an order is estimated to be $48.

Explanation / Answer

solution:-

Annual demand (D) = 5300 units
Order quantity (Q) = 1200 units
Holding cost rate per unit (H) = $3
Cost to place an order (S) = 48

a. Average inventory level = Q/2
Average inventory level = 1200/2
Average inventory level = 600 Units

b. The number of orders placed per year
Total order placed in a year = D/Q
Total order placed in a year = 5300/1200
Total order placed in a year = 4.42 orders per year

c. The total annual inventory holding cost
Total annual inventory holding cost = (Q/2)*H
Total annual inventory holding cost = (1200/2)*$3
Total annual inventory holding cost = (600)*$3
Total annual inventory holding cost = $1800.00

d. The total annual ordering cost
Total annual ordering cost = (D/Q)(S)
Total annual ordering cost = (5300/1200)(48)
Total annual ordering cost = (4.42)($48)
Total annual ordering cost = $212.16  

e. The total annual cost
Total annual cost = (annual inventory holding cost) + (Total annual ordering cost)
Total annual cost = $1800.00 + $212.16
Total annual cost = $2012.16

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