A wine shop sells 210 bottles of a specialty wine each month. The specialty wine is purchased from a winery in France, which sells wine bottles in cases, with each case containing 50 bottles. The winery charges the wine shop $5.5 per bottle and an ordering cost of $250 per order. The wine shop's annual inventory holding cost percentage is 40%. If the wine shop's order quantity is 6 cases, then what is its annual cost of ordering and holding inventory?

The total annual cost of ordering and holding inventory for the wine shop, considering it purchases 6 cases per order of a speciality wine, is $2430. This includes $2100 in ordering costs and $330 in holding costs.

Explanation:

The wine shop purchases 210 bottles speciality wine per month, or 2520 bottles per year. Each order contains 6 cases, or 300 bottles. Consequently, the wine shop needs to place approximately 8.4 orders (2520/300) per year. Each order costs $250, leading to an annual ordering cost of $2100 (8.4 * $250).

Next, we calculate the annual holding cost: With 40% as the annual holding cost percentage, and a cost of $5.5 per bottle, the average inventory held is half the order size (6 cases / 2 equals 150 bottles). This leads to an annual holding cost of $330 ((150 * $5.5) * 40%).

Therefore, the total annual cost of ordering and holding inventory for the wine shop is $2430 ($2100 in ordering costs + $330 in holding costs).

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