McKenzie Corporation consumes 1,200,000 gallons of Material Y per year. Its order quantity is 30,000 gallons. It maintains a safety stock of 10,000 gallons and its annual carrying costs are $0.25 per gallon per year. If the ordering cost is $20 per order, what are the total annual ordering costs?
a. $600
b. $800
c. $8,300
d. $1,200
B
Annual ordering costs = (1,200,000/30,000) * $20
= 40 orders * $20
= $800
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