The manager of the Quick Stop Corner Convenience Store (which never closes)sells four cases of Stein beer each day.Order costs are $20.00 per order,and Stein beer costs $8.00 per six-pack (each case of Stein beer contains four six-packs).Orders arrive three days from the time they are placed.Daily holding costs are equal to five percent of the cost of a Stein beer case. If he has to order 16 cases of Stein beer at a time,what would be the daily total inventory costs,EXCLUDING the cost of the beer?
A)$3.20
B)$6.40
C)$9.60
D)$12.80
E)$16.00

Question

Quizplus · Accepted Answer

The store sells 4 cases of Stein beer each day, so it needs to order (4 cases/day)*(3 days/order) = 12 cases every 3 days. If the manager orders 16 cases at a time, he will be placing an order every (16 cases/order)/(12 cases/3 days) = 4.5 days on average.

Let's calculate the holding cost per case per day: 
Holding cost per case = 5% of $8.00/six-pack * 4 six-packs/case = $0.80/case 
Holding cost per day = $0.80/case * 16 cases/order * (1 order / 4.5 days) = $2.84/day

The total inventory cost per day is the sum of the order cost per day (since the manager places an order every 4.5 days on average) and the holding cost per day: 
Order cost per day = $20.00/order * (1 order / 4.5 days) = $4.44/day 
Total inventory cost per day = $2.84/day + $4.44/day = $7.28/day

However, the question asks for the daily total inventory costs EXCLUDING the cost of the beer. Therefore, we only need to consider the holding cost per day: 
Total inventory costs EXCLUDING the cost of the beer = $0.80/case * 16 cases/order * (1 order / 4.5 days) = $2.84/day

So the answer is D) $12.80.

The Manager of the Quick Stop Corner Convenience Store (Which