Question

Annually a bookstore sells about 900 copies of The Art of the Steal. Books are ordered from the publisher who charges a processing fee of $16 for each order. The annual holding cost of a book is estimated at $2. The bookstore orders in quantities of 150 copies. The annual total (holding+ordering) cost of this policy is: $96 $246 $123 $150

Answer 1

Book stores orders in quantities of 150 copies.

Order quantity = 150 copies

Average inventory = order quantity / 2

= 150/2 = 75

Annual holding cost = average inventory * holding cost

= 75 * $2

= $150

Ordering cost calculation

Order quantity = 150 copies

NUmber of orders = demand/ order quantity

= 900/ 150

= 6 orders

Annual ordering cost = number of orders* ordering cost

= 6 * 16

= $96

Total cost of holding + ordering cost = $150+$96

=$246