Very Technical is a firm that sells computing equipment. It costs Very Technical $150 for each order of computer monitors and the variable cost of placing an order is $2 per monitor. Very Technical pays an annual holding cost of $8 per monitor. If Very Technical sells 4,000 computer monitors a year and they order 500 monitors, what is the total annual cost of the monitors?

Question

Quizplus · Accepted Answer

The total annual cost of the monitors includes the purchase cost, ordering cost, and holding cost. The purchase cost is $150 per order of monitors, regardless of the number of monitors per order. Since Very Technical orders 500 monitors at a time and sells 4,000 a year, they will place 8 orders a year (4,000/500). The ordering cost is $2 per monitor, so for 4,000 monitors, the total ordering cost is 4,000 * $2 = $8,000. The annual holding cost is $8 per monitor, and since they order 500 monitors at a time, on average, they hold 250 monitors (half of 500, assuming steady sales throughout the year). The annual holding cost is 250 * $8 = $2,000. Adding these costs together: Purchase cost for 8 orders at $150 each is 8 * $150 = $1,200. So, the total annual cost is $1,200 (purchase) + $8,000 (ordering) + $2,000 (holding) = $11,200.

Very Technical Is a Firm That Sells Computing Equipment