Figure 7-2.Steller Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are found below:

-Refer to Figure 7-2. Calculate the total customer cost for the JIT distributor.
A) $487,500
B) $341,753
C) $600,000
D) $250,050
E) $448,791

Question

Figure 7-2.Steller Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors purchase the same product. The customer activities and costs for the previous quarter are found below:
 
-Refer to Figure 7-2. Calculate the total customer cost for the JIT distributor.
A) $487,500 
B) $341,753 
C) $600,000 
D) $250,050 
E) $448,791

Quizplus · Accepted Answer

To calculate the total customer cost for the JIT distributor, we need to add the order cost, stockout cost, and carrying cost. 
Order cost = (250 orders per quarter / 12) * $225 per order = $4,687.50 per order
Stockout cost = (10 stockouts per quarter / 12) * $2,500 per stockout = $20,833.33 per stockout
Carrying cost = ($150,000 inventory investment for JIT distributor / 4) * 0.25 carrying cost rate = $9,375. 
Total customer cost = (250 orders per quarter * $4,687.50 per order) + (10 stockouts per quarter * $20,833.33 per stockout) + ($9,375 carrying cost) = $341,752.63.