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17 October, 17:32

A North Face retail store in Chicago sells 500 jackets each month. Each jacket costs the store $100 and the company has an annual holding cost of 25 percent. The fixed cost of a replenishment order (including transportation) is $100. The store currently places an replenishment order every month for 500 jackets. What is the annual holding and ordering cost?

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  1. 17 October, 19:49
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    Monthly Quantity sold = 500 units

    Annual demand = 500 x 12 = 6000 units

    Cost per order = $100

    Carrying cost = 25% = 25% x $100 = 25per unity per year

    Holding cost per period = 1/2 x ordered quantity x holding cost

    = 1/2 x 500 x 25

    = 12500/2

    Annual Holding cost = $ 6250

    To calculate the number of order we get according to the below mentioned formula

    Number of orders = Annual Demand / Order quantity

    = 500 x 12/500

    = 12

    To calculate the ordering cost, we use the formula as under

    Ordering cost = Number of orders x cost per order

    = 12 x 100

    Annual ordering cost = $ 1200
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Home » Business » A North Face retail store in Chicago sells 500 jackets each month. Each jacket costs the store $100 and the company has an annual holding cost of 25 percent. The fixed cost of a replenishment order (including transportation) is $100.
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