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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 20, Problem 19E
Textbook Problem
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The economic order quantity (EOQ) for Part X15 is 600 units. The annual ordering cost is $4,800. Which of the following is true?

  1. a. The annual demand for Part X15 is 600 units.
  2. b. The annual carrying cost is $4,800.
  3. c. The average carrying cost per unit is $8.
  4. d. The cost of placing one order is $8.

To determine

Identify the option which is correct for the given statement.

Explanation of Solution

Economic order quantity (EOQ): Economic order quantity is ideal order quantity that the company should purchase the inventory with the ideal level. The economic order quantity (EOQ) approach assumes that some inventory must be held for future production. The main objective of the EOQ is to balance the ordering costs against the holding costs of inventory.

Ordering costs: The cost of preparing, placing and receiving a purchase order is called as ordering costs. Examples: Clerical costs of preparing purchase orders, time spent to find the suppliers and transportation costs.

Carrying costs: Carrying cost or holding cost is a manufacturing cost that is incurred while the inventory is kept on hand for some period of time...

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Chapter 20 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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