Question

The purchasing manager for Alpa Enterprises requested the following data from the accounting department:

Annual demand = 15,500; Cost of placing an order = £180; Annual inventory holding costs = 20 percent; Unit cost = £78

Suppose Alpha has been arbitrarily ordering 50 times per year. What is the total annual inventory cost?

Answer 1

Total Annual inventory cost= Annual ordering cost + Annual holding cost
Annual ordering ocst = Total orders per year *cost per order =50* £180 = £9000
Annual Holding cost = Average inventory *Unit cost *Persentage of holding cost
Inventory Per order = annual Demand / No of Orders =15500/50 =310
Annual holding cost = (310/2)* £78*20% = £2418
Total Annual Inventory cost = £9000+ £2418 = £11418