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Question: Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French B...

Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French Bete Noire which is shipped directly from France. Weekly demand is for 45 cases. Millennium purchases each case for $125, there is a $275 fixed cost for each order (independent of the quantity ordered) and their annual holding cost is 25 percent.

b.If Millennium chooses to order 350 cases each time, what is the sum of their annual ordering and holding costs? (Round your answer to 2 decimal places.)

Answer 1

Weekly demand = 45 cases

Assuming 52 weeks per year, Annual demand (D) = weekly demand × 52 = 45 × 52 = 2340 cases

Ordering cost (S) = $275

Holding cost (H) = 25% of purchase price = 25% of $125 = $31.25

Order quantity (Q) = 350 cases

Annual ordering cost = (D/Q)S = (2340/350)275 = $1838.57

Annual holding cost = (Q/2)H = (350/2)31.25 = $5468.75

Sum of their annual ordering and holding cost = Annual ordering cost + Annual holding cost = $1838.57 + $5468.75 = $7307.32