Ordering and Carrying CostsOttis, Inc., uses 806,180 plastic housing units each year in its production of paper shredders. The cost of placing an order is $35. The cost of holding oneunit of inventory for one year is $17. Currently, Ottis places 173 orders of 4,660 plastic housing units per year.Required:1. Compute the annual ordering cost.2. Compute the annual carrying cost.3. Compute the cost of Ottis's current inventory policy.Is this the minimum cost?No

1. Calculate annual ordering costs as shown below: Annual ordering costs = Order cost*No of orders Annual ordering costs = $35*173 orders Annual ordering costs = $6,055 Thus, annual ordering costs is $6,055. 2. Calculate annual carrying costs as shown below: Annual carrying costs = (4660/2)*$17 Annual carrying costs = $39,610 Thus, annual carrying costs is $39,610. 3. Calculate cost of current inventory policy as shown below: Cost of current inventory policy = Annual carrying costs + Annual ordering costs Cost of current inventory policy = $39,610 + $6,055 Cost of current inventory policy = $45,665 Thus, cost of current inventory policy is $45,665. The total costs is not minimum costs as both its carrying costs and ordering costs is higher.

Answered: Required: 1. Compute the annual…

Business

Accounting

Required: 1. Compute the annual ordering cost. 2. Compute the annual carrying cost. 3. Compute the cost of Ottis's current inventory policy. Is this the minimum cost? No %24

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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