Question

A car rental agency uses 96 boxes of staples a year. The boxes cost $4 each. It costs $20 to order staples, and carrying costs are $0.80 per box on an annual basis.
1. Determine the annual cost of ordering and carrying the boxes of staples.

A. $55

B. $48

C. $196

D. $69

E. $20

Answer 1

Answer:

The correct answer is $55.42.

Explanation:

According to the scenario, the computation of the given data are as follows:

Boxes use = 96 boxes

Cost = $4 per box

Staple cost = $20

Carrying cost = $0.80

So, we can calculate the annual cost of ordering and carrying by using following formula:

Annual cost = (EOQ ÷ 2) × Carrying cost + (Boxes use ÷ EOQ) × Staple cost

Where, EOQ = ( 2 × 96 × 20 ÷ 0.80)^1/2 = 69.28

So, by putting the value, we get

Annual cost = ( 69.28 ÷ 2) × $0.80 + ( 96 ÷ 69.28) × $20

= $27.71 + $27.71

= $55.42