The demand for particular part called SKU 005 is 1,500 units a year. The cost of
ID: 432584 • Letter: T
Question
The demand for particular part called SKU 005 is 1,500 units a year. The cost of one SKU 005 is $64.00. It costs $60.00 to place an order SKU 005, and the user of SKU 005 has a per year inventory carrying cost of 25% of unit cost. Assume that there are 250 working days in the year where SKU 005 is used. Please answer the following question based on this information.
What is the combined annual holding and ordering cost of an order size of 200 units for SKU 005?
A. $1200, B. $1360, C. $825, D. $2050
Explanation / Answer
Annual demand, D = 1500 units
Unit cost, C = $ 64
Order cost, S = $ 60 per order
Inventory holding cost, H = 64*25% = $ 16 per unit per year
Order size, Q = 200 units
Combined annual holding and ordering cost = (Q/2)*H + (D/Q)*S
= (200/2)*16 + (1500/200)*60
= 2050
ANSWER: D. $ 2050
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