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 level when ordering 40 units at a time is half of that, which is 20 units. The carrying cost per unit per year is $4. Therefore, the average annual carrying cost is 20 units * $4/unit = $80.

Figure 8-3 Martin Company Uses 625 Units of a Part