CPIM Practice Exam

What is the annual ordering cost for an item with a lot size of 800 units and annual demand of 14,000 units?

1. $105

2. $225

3. $375

4. $525

The correct answer is: $525

To determine the correct annual ordering cost for the item, you would need to use the formula for calculating ordering costs. The annual ordering cost can be computed with the following formula: Annual Ordering Cost = (Annual Demand / Lot Size) × Cost per Order First, we can break down the annual demand of 14,000 units and the lot size of 800 units to find the number of orders placed in a year: Number of Orders = Annual Demand / Lot Size Number of Orders = 14,000 units / 800 units = 17.5 orders This means that approximately 18 orders will be placed in a year (you would typically round this up since you can't place a fraction of an order). Next, if we assume the cost per order needs to be provided or known to calculate the total annual ordering cost, without this specific number, we can't directly solve for the annual ordering costs. However, if we consider that the ordering cost per order is $30 (for illustrative purposes, as an example): Annual Ordering Cost = Number of Orders × Cost per Order Annual Ordering Cost = 18 orders × $30 per order = $540 Nonetheless, the annual ordering costs would vary based on the actual cost per order