Question

Post Card Depot, an large retailer of post cards, orders 5,784,638 post cards per year from its manufacturer. Post Card Depot plans on ordering post card 17 times over the next year. Post Card Depot receives the same number of post cards each time it orders. The carrying cost is $0.17 per post card per year. The ordering cost is $251 per order. What is the annual total inventory management costs of post card inventory? (Round the answer to two decimal places).

Answer 1

Solution:
	The annual total inventory management costs of post card inventory	$33,190.19
Working Notes:
	The annual total inventory management costs of post card inventory
	= Total annual ordering cost + Total annual carrying cost
	Total annual carrying cost
	=average inventory x carrying cost per unit
	Average inventory = Order size /2
	Order size = Annual demand/no of orders per year
	Order size = 5,784,638/17
	Order size = 340272.823529
	Average inventory = Order size /2
	Average inventory = (5,784,638/17) /2
	Average inventory = 170,136.4117647
	Total annual carrying cost
	=average inventory x carrying cost per unit
	=170,136.4117647 x $0.17
	=$28,923.1900
	=$28,923.19
	Total annual ordering cost
	=number of orders x ordering cost per order
	number of orders =17
	ordering cost per order =$251 per year
	Total annual ordering cost
	=number of orders x ordering cost per order
	=17 x 251
	=4,267
	The annual total inventory management costs of post card inventory
	= Total annual ordering cost + Total annual carrying cost
	=$4,267 + $28,923.19
	=$33,190.19
Please feel free to ask if anything about above solution in comment section of the question.