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Natasha_Volkova [10]
3 years ago
5

C&A purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case co

nsists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A's annual holding costs are 30%. What is C&A's holding cost per case per year?
Business
1 answer:
Verdich [7]3 years ago
7 0

Answer:

$1.5

Explanation:

Given:

Charges per order = $30

Charges per case = $50

1 case = 5 bags of fertilizers

Number of fertilizers bags needed per year = 2000 bags

Annual holding cost, C₀ = 30%

Now,

Annual demand for cases,  D = \frac{\textup{Number of fertilizers bags needed}}{\textup{Number of bags per case}}

= \frac{\textup{2000}}{\textup{5}}

= 400 cases

thus,

Annual unit holding cost per case, C_h = 30% of $50 i.e $15

Thus,

Economic Order quantity ( EOQ ) =\sqrt{\frac{2C_oD}{C_h}}

on substituting the respective values, we get

EOQ =\sqrt{\frac{2\times30\times400}{15}}

or

EOQ = 40

Now,

Annual ordering cost = Ordering cost × Number of orders

= C₀ × \frac{\textup{annual demand}}{\textup{EOQ}}

= $30 × \frac{\textup{400}}{\textup{40}}

= $300

Annual inventory holding cost

= Annual unit inventory holding cost × Average inventory

= C_h × \frac{\textup{EOQ}}{\textup{2}}

= $15 × \frac{\textup{40}}{\textup{2}}  

= $300

Now,

Sum of annual ordering and holding cost per case of fertilizer

= $300 + $300

= $600

Therefore,

Annual ordering and holding cost per case of fertiliser

= \frac{\textup{600}}{\textup{Annual demand}}

= \frac{\textup{600}}{\textup{400}}

= $1.5

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