Answer:
A. $348.29
Explanation:
Given that:
The Paint Supply Store franchise sells an average of 30 gallons of Red Paint every week (for 52 weeks per year)
i.e weekly demand = 30 gallons
Since 30 gallons is demanded weekly
Then annual demand for a year that contains 52 weeks = 30 × 52
= 1560
Order quantity = 70 gallons
Thus; number of orders = annual demand for a year / order quantity
number of orders = 1560 /70
number of orders = 22.2857
Price per gallon = $2.00
Time to receive order = 1.25 weeks
Administrative cost Ordering paint (i.e ordering cost per order) = $15
The total Ordering cost per order = number of orders × ordering cost per order
The total Ordering cost per order = 22.2857 × 15
The total Ordering cost per order = $334.2855
Holding cost = 20% of the purchase price per gallon per year
Holding cost = 20/100 × $2
Holding cost = 0.2 × $2
Holding cost = $0.4 per unit per year
∴
The Inventory Holding cost = ( order quantity /2 ) × holding cost
The Inventory Holding cost = (70/2) × 0.4
The Inventory Holding cost = 35 × 0.4
The Inventory Holding cost = $14
Finally, Total Annual Inventory Cost for the company's current policy is :
Total Annual Inventory Cost = Total Ordering cost per order + Inventory Holding cost
Total Annual Inventory Cost = $334.2855 + $14
Total Annual Inventory Cost = $348.2855
Total Annual Inventory Cost ≅ $348.29
