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 1,300 units. Annual demand is 5,100 heat sinks, the annual inventory holding cost rate is $4 per unit, and the cost to place an order is estimated to be $58. Calculate average inventory level. units LINK TO TEXT Calculate number of orders placed per year. orders (Round your answer to 2 decimal places, the tolerance is +/-0.01.) LINK TO TEXT Calculate total annual inventory holding cost. $ LINK TO TEXT Calculate total annual ordering cost. $ (Round your answer to 2 decimal places, the tolerance is +/-0.08.) LINK TO TEXT Calculate total annual cost. $ (Round your answer to 2 decimal places, the tolerance is +/-0.08.)

Explanation / Answer

Average inventory = (Opening + Closing) / 2 = (1,300 + 0) / 2 = 650 units.

Number of orders placed per year = Annual demand / Order quantity per order = 5,100 / 1,300 = 3.92 or 4 orders.

Total annual inventory holding cost = Average Inventory x Holder cost per unit per annum = 650 x $4 = $2,600.

Total annual ordering cost = Number of orders x Ordering cost per order = 4 x $58 = $232

Total annual cost = Purchase cost + Holding cost + Ordering cost = $12 x 5,100 + $2,600 + $232 = $64,032.

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