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Powered by Coffee (PBK.) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every month, and demand is steady throughout the year. PBK has signed a contract to purchase its coffee from a local supplier, Phish Roasters, for a price of $25 per bag and an $85 fixed cost for every delivery independent of the order size. PBK incurs an inventory holding cost of 24 percent per year. If PBK orders 200 bags at a time, what is its inventory holding cost per year? $1200 $600 $200 $400
Expert Answer
Inventory Holding cost per year= (Q/2)*H
Where, Q= Order Quantity, H= Annual Holding Cost
Annual holding cost, H= Holding cost% * cost per unit.
Holding cost %= 24 and Cost per unit= $25
24%*25=$6
Q=200
Inventory holding cost per year= (Q/2)*H
(200/2)*6=$600
Answer= $600 and option (b).
