Figure 8-3. Martin Company uses 625 units of a part each year.The cost of placing one order is $8; the cost of carrying one unit in inventory for a year is $4.
Refer to Figure 8-3.Martin has decided to begin ordering 40 units at a time.What is the average annual carrying cost of Martin's new policy?
A)$80
B)$60
C)$160
D)$4
E)$90

Question

Quizplus · Accepted Answer

The average inventory is 40/2 = 20 units. The carrying cost per unit is $4, so the average annual carrying cost is 20 * $4 = $80.