The administrative cost of placing a costumer on backorder

Reference no: EM13628303

Appliance Alley sells Super Clean washing machine. Demand for super machine averages 65 units per month. Super Clean costs $1,200 each. Assuming the annual holding cost is $525. If Appliance Alley is out of stock, it offers customers a discount of $20 per week. The cost of placing an order is $1,250. The administrative cost of placing a costumer on backorder is estimated to be $10. The planned shortage inventory model recommends order quantity Q* = 74 and shortage level S = 20. What is the total annual shortage cost (rounded to dollar)?

a. $4,919

b. $19,425

c. $20,800

d. $28,439

e. None of the above

Reference no: EM13628303

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