Which ordering frequency minimizes total inventory cost for the taxidermist's resin?

• A. Ordering once a year
• B. Ordering monthly
• C. Ordering weekly
• D. Ordering daily

Answer: (A)

Total inventory cost comes from two parts: holding cost for stock kept on hand and the fixed cost of placing orders. These move in opposite directions as you change how often you order. If you order more often, you pay more in ordering charges but hold less on average; if you order less often, you pay less in ordering charges but carry more inventory, increasing holding costs.

For the taxidermist’s resin, if the holding cost is relatively low and each order has a noticeable fixed cost, minimizing the number of orders lowers the total annual cost. Ordering once a year reduces the fixed ordering charges to the minimum possible, and the extra holding cost from carrying a year’s supply is outweighed by the savings from not paying multiple orders. Hence, one annual order yields the smallest total cost under these assumptions.

Frequent orders (monthly, weekly, or daily) would incur much higher total ordering costs, which would raise the total cost even though they cut the inventory on hand.