The setup cost to make a carpet is $20 per setup.The holding cost is $2.00 per yard per year,and the annual demand is 12,000 yards.The manufacturing facility operates 300 days,and 120 yards of the carpet are produced per day.Given this information,what is total annual carrying cost?
A)$600
B)$500
C)$400
D)$300

Question

Quizplus · Accepted Answer

Total annual demand = 12,000 yards
Yards produced per day = 120
Number of days facility operates = 300

So, the number of setups required in a year = 12,000/120 = 100
Total setup cost = 100 x $20 = $2,000

Also, holding cost per yard per year = $2.00
Total yards held in a year = (12,000/2) = 6,000
Total holding cost = 6,000 x $2.00 = $12,000

Therefore, the total annual carrying cost = Total setup cost + Total holding cost = $2,000 + $12,000 = $14,000

Hence, the best choice is C, which is $400.

The Setup Cost to Make a Carpet Is $20 Per