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 ($200,000 × 4%). If the purchasing manager places 8 orders of 50 pounds each, the entity's total cost can be calculated as follows:
Annual ordering costs
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$ 1,600
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Annual carrying costs
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2,500
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Annual discounts lost
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8,000
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Total cost
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$12,100
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