On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $150. If the inventory carrying cost is 25 percent per year and assuming no ordering costs

Question

Business

Edith Compton

23 March, 14:05

On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $150. If the inventory carrying cost is 25 percent per year and assuming no ordering costs

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Answers (1)

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Jeremiah Gilbert · Answer 1

Buying all 100 unit will save $3,937.5.

Explanation:

Buying 100 unit

Average Inventory (100 / 2) 50 units

Purchase cost (100 x 100) $10,000

+Carrying cost (50 x 100 x 25%) $1,250

= Total cost $11,250

Buying 10 unit

Average Inventory (10 / 2) 5 units

Purchase cost (100 x 150) $15,000

+Carrying cost (5 x 150 x 25%) $187.50

= Total cost $12,500

Saving $3,937.5