C& a purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. each case consists of five bags of fertilizer. c& a needs 2000 bags of fertilizer a year. c& a's annual holding costs are 30%. what is c& a's holding cost per case per year?

$1.5

Explanation:

Given:

Charges per order = $30

Charges per case = $50

1 case = 5 bags of fertilizers

Number of fertilizers bags needed per year = 2000 bags

Annual holding cost, C₀ = 30%

Now,

Annual demand for cases,  D =

=

= 400 cases

thus,

Annual unit holding cost per case, = 30% of $50 i.e $15

Thus,

Economic Order quantity ( EOQ ) =

on substituting the respective values, we get

EOQ =

or

EOQ = 40

Now,

Annual ordering cost = Ordering cost × Number of orders

= C₀ ×

= $30 ×

= $300

Annual inventory holding cost

= Annual unit inventory holding cost × Average inventory

= ×

= $15 ×  

= $300

Now,

Sum of annual ordering and holding cost per case of fertilizer

= $300 + $300

= $600

Therefore,

Annual ordering and holding cost per case of fertiliser

=

=

= $1.5

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