Question

Throughout the year an auto parts warehouse places several orders for a high-volume automobile air filter. The demand for this air filter is very stable (flat) and the lead time from the supplier is very reliable (no variation), consequently the warehouse holds virtually no safety stock for this item. When placing orders for this air filter the warehouse uses an order quantity of 170 units and pays an annual holding cost of $2.00 per unit per year.

How much will the warehouse pay in total annual holding costs for this air filter? (Display your answer to the nearest whole number.)

Answer 1

Answer: $170

Step-by-step explanation:

The amount that the warehouse will pay in total annual holding costs for this air filter will be calculated thus:

Order quantity(Q) = 170 units

Holding cost(H) = $2.00 per unit per year

Total annual holding cost will be:

= (Order quantity/2) × Holding cost

= (170/2) × 2.00

= 85 × 2.00

= $170

The annual holding cost is $170