Flash is a distributor of flash drives.Office Mart is a local retail outlet which sells flash drives.Office Mart purchases from Office,Inc.at $0.80 per flash drive;and,the flash drives are shipped in packages of 30.Office,Inc.pays for all incoming freight,and Office Mart does not inspect the flash drives due to Office,Inc.'s reputation for high quality.Annual demand is 160,000 flash drives at a rate of 2,800 flash drives per week.Office Mart earns 12% on its cash investments.The purchase-order lead time is one week.The following costs are available:

Required
If Office Mart makes an order (1/12 of annual demand)once per month,what are the relevant total costs?
A)$5,593.60
B)$5.683.42
C)$6,284.68
D)$6,486.52
E)$7,286.59

Question

Flash is a distributor of flash drives.Office Mart is a local retail outlet which sells flash drives.Office Mart purchases from Office,Inc.at $0.80 per flash drive;and,the flash drives are shipped in packages of 30.Office,Inc.pays for all incoming freight,and Office Mart does not inspect the flash drives due to Office,Inc.'s reputation for high quality.Annual demand is 160,000 flash drives at a rate of 2,800 flash drives per week.Office Mart earns 12% on its cash investments.The purchase-order lead time is one week.The following costs are available:

Required
If Office Mart makes an order (1/12 of annual demand) once per month,what are the relevant total costs?

Required
If Office Mart makes an order (1/12 of annual demand)once per month,what are the relevant total costs?
A)$5,593.60 
B)$5.683.42 
C)$6,284.68 
D)$6,486.52 
E)$7,286.59

Quizplus · Accepted Answer

A)Order Quantity = Annual Demand / 12 = 160,000 / 12 = 1,333.33 / 52 = 256.41,or 256 disks per month
RTC = Ordering Costs + Carrying Costs
Carrying Cost per carton = [($0.80 × 30 × 12%)+ $.80] = $3.68
RTC = (12 × $116)+ (256/2)× $3.68] = 323.68
[(1392 + 128)× $3.68] = $5,593.60

Flash Is a Distributor of Flash Drives