LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' total costs of managing inventory?
A) $960.00
B) $1,135.00
C) $1,225.00
D) $175.00

Question

Quizplus · Accepted Answer

First, we need to calculate how many orders LAMA Creations places per year:

1200 bundles / 100 bundles per order = 12 orders per year

Next, we can calculate the annual ordering cost:

12 orders per year * $80.00 per order = $960.00 per year

Then, we can calculate the annual carrying cost:

1200 bundles * $3.50 per bundle = $4,200.00 per year

Finally, we can add the ordering cost and carrying cost together to get the total cost of managing inventory:

$960.00 + $4,200.00 = $5,160.00

Therefore, the best choice is B, $1,135.00 because it is the only option that is close to the total cost of managing inventory.

LAMA Creations Creates Sweaters Using the Wool of the Llama