Northwest Hospital currently buys surgical gloves in lots of 1,500 boxes once ev

Question

1. Northwest Hospital currently buys surgical gloves in lots of 1,500 boxes once every four months. Under this ordering policy, demand for gloves will be completely satisfied with no surplus and no shortage. The carrying cost is $15.00 per box per year, which is equivalent to 10% of the cost per box. The ordering cost is $150 per order. What is the cost of one box of gloves?
2. Under the current ordering policy (i.e., 1,500 boxes every four months), what is the annual total inventory holding cost?
3. Under the current ordering policy, what is the annual total ordering cost?

Explanation / Answer

ANSWER1)

carrying cost is $15.00 per box per year, which is equivalent to 10% of the cost per box

hence 15.00= 0.1*C

Cost =$150 dollar

ANSWER 2)

annual total inventory holding cost =( I*C*Q/2) = 0.1*150*1500*2= $11250

ANSWER 3)

annual total ordering cost = 3*order cost = 3*150 = $450

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