Question:
The annual demand for a product has been projected at 2 000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. Currently, the purchase cost $40 per unit. There are 250 working days per year.
Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days.
Currently, the company is ordering 500 units each time an order is placed. What is the total holding cost for the year using this policy?