Mark achin sells 3,600 electric motors each year. the cost of these is $200 each, and demand is constant throughout the year. the cost of placing an order is $40, while the holding cost is $20 per unit per year. there are 360 working days per year and the lead-time is 5 days. if mark orders 200 units each time he places an order, what would his total ordering cost be for the year? a.$2,000b.$2,720c.$200d.$720e. none of these

Summary of information:

total output = 3600 units per year

split into 18 equal orders

cost per order = $40

cost to store a unit for one year = $20

lead time (i. e. storage before shipping) = 5 days

Solution:

quantity split into 18 orders, so 3600/18 = 200 units per order.

Order cost = $40 * 18 orders = $720 ... (A)

Storage cost:

Each order has 200 units, stored for 5 days = 200*5=1000 unit-days

storage needed for 18 orders = 1000*18 = 18000 unit-days = 50 unit-years

Total storage cost = 50 unit-years * $20 / unit year = $1000 ... (B)

Total ordering cost = (A) + (B) = $720+$1000 = $1720