Answer (C) is correct.The entity's annual ordering costs are $1,600 ($200 per order × 8 orders per year), and the annual carrying costs are $2,500 ($100 per pound × 25 pounds average inventory). Gross annual product purchase cost is $200,000 ($500 per pound × 400 pounds annual usage). Because the differential discount lost is 4% (6% – 2%), annual discounts lost equal $8,000 ($200,000 × 4%). If the purchasing manager places 8 orders of 50 pounds each, the entity's total cost can be calculated as follows:
Annual ordering costs

$ 1,600

Annual carrying costs

2,500

Annual discounts lost

8,000



Total cost

$12,100


