Watson inc. is a manufacturing company operating in the southeastern united states. the company has three primary product lines, as well as several "secondary" lines. the company's controller is in the process of preparing the annual financial statements and will need to classify the following cost objects as either product costs or period costs. for each of these costs, determine the amounts that will be considered product costs versus the amounts that will be considered period costs

a) Total annual inventory cost (including purchase cost) for the current supplier = $421,154

b) Annual holding cost for the new supplier (when purchasing 3,000 each order) =  $3,675

c) Total annual inventory cost = $389,298

d) Since the total cost has reduced, Flora Beauty should choose the new supplier option.

Explanation:

Annual demand, D = 22,000

Unit cost, C = $19

Ordering cost, K = $85

Unit carrying cost, h = 14% of C

h = 0.14*19 = $2.66

(a)  Total annual inventory cost for the current supplier,

...........(1)

Economic order quantity,Q'

Su bstitute Q' and other parameters into Tc

(b)

Q = 3000

C = $17.50

h = 0.14*17.50 = 2.45

Annual holding cost for the new supplier = (Q/2)*h = (3000/2)*2.45 = $3,675

(c)

Total annual inventory cost = (D*C) + (Q/2)*h + (D/Q)*K

Total annual inventory cost = (22000*17.5) + (3000/2)*2.45 + (22000/3000)*85

Total annual inventory cost for the new supplier = $389,298

d)

Since the total cost has reduced, Flora Beauty should choose the new supplier option.