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What are the relevant total costs

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Reference no: EM132748184

Question - Spencer Industries produces a single product, and has the following information available concerning this item:

Relevant ordering costs per purchase order $400

Relevant carrying costs/unit per year:

Required annual return on investment 20%

(Hurdle Rate)

Required other costs per year (insurance, etc.) $10.00

Annual demand is 100,000 units per year. The purchase price per package is $80.

When you are calculating total carrying cost/unit, don't forget to add opportunity cost to the $10.00/unit.

Required -

1. What is the economic order quantity (EOQ)?

a. 1,554 units

b. 1,654 units

c. 1,754 units

d. 1,854 units

2. What are the relevant total costs (ordering cost + carrying cost) if Spencer Industries insists on using an order size equal to 2,000 units?

a. $44,000

b. $46,000

c. $48,000

d. $50,000

Reference no: EM132748184

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