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. LAMA Creations' cost may change if the order quantity is increased from 100 bundles to 200 bundles at a time. What is the cost difference between the carrying costs with orders of 100 bundles as compared to orders of 200 bundles?
A) $350.00
B) $225.00
C) $175.00
D) $0.00

Question

Quizplus · Accepted Answer

The carrying cost for 100 bundles at a time is calculated based on the average inventory held, which is half of the order quantity, so for 100 bundles, the average inventory is 50 bundles. The carrying cost is $3.50 per bundle, so for 50 bundles, it's 50 * $3.50 = $175. For 200 bundles, the average inventory is 100 bundles, so the carrying cost is 100 * $3.50 = $350. The difference in carrying costs between ordering 100 bundles and 200 bundles is $350 - $175 = $175.

LAMA Creations Creates Sweaters Using the Wool of the Llama