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The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day
The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $0.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the average daily total inventory costs, excluding the cost of the beer?
Expert Solution
The average daily total inventory cost (IC) can be calculated using the following formula:
IC=(Q/2)×P×CIC=(Q/2)×P×C
where Q denotes the amount order each time, P denotes the price per unit, and C denotes the holding cost percentage. Based on the information given, Q = 16 cases. The price per six-pack is $0.80. Because each case contains 4 six-packs, the price per case is $0.80 x 4 = $3.20. Thus, P = $3.20 per case. C is 5% or 0.05. Therefore, we have that:
IC=(16/2)×3.20×0.05=1.28IC=(16/2)×3.20×0.05=1.28
That is, the average daily total inventory costs are $1.28.
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