Your work for an upscale retailer in the U.S. that has recently begun to import fine woolen garments from a South American manufacturer called Merino Magic. Some of Merino Magic's best selling products in the U.S. include a range of woolen pullovers that are warm in the winter, yet cool in summer, so demand is expected to be fairly steady throughout the year. You are trying to determine the appropriate inventory management policies for working with this supplier, and have gathered the following information.
You estimate that demand for the coming year will be 52,000 pullovers. Each unit (a unit = 1 pullover) is valued at $135 (US), and inventory carrying costs are estimated at 15%. Each order placed to Merino Magic in South America costs $195. Assume 365 working days per year.
Assuming a fixed order quantity approach, what are your company's annual costs expected to be in the coming year?
Answer
a.
$1,001,482
b.
$1,000
c.
$20,265
d.
$10,133