Dear TIMUCIN ONER,
Your question is how we can find average annual inventory?
The total annual inventory cost is made up of the total annual carrying cost and the total annual ordering cost. The annual carrying cost is calculated by multiplying the carrying cost per unit times the average inventory level. For the purposes of this calculation, the average inventory is equal to the number of units per order divided by two.
So, in this scenario purchasing manager places order 50 lbs. pounds when we calculate annual carrying cost remember this formula we need to divide by two whatever number of quantities given in the question to get average inventory value.
Here Annual Carrying cost we need to calculate? = $100 x 50 lbs.
100 x 25 = 2,500 Annual carrying cost
Thank you for your question I hope you really understand this explanation is there any thing let me know.
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