Big Bus Company produces buses. In order to produce the seats for the buses, special equipment must be set up. The setup cost per frame is $40. The cost of carrying seats in inventory is $5 per seat per year. The company produces 100,000 buses per year.
-Refer to the figure.What are the total carrying costs (rounded to the nearest dollar)associated with the economic order quantity?
A)$316
B)$506
C)$3,163
D)$3,613

Question

Quizplus · Accepted Answer

The total carrying cost at the Economic Order Quantity (EOQ) is half the product cost times the carrying cost per unit. Given that the setup cost per frame is $40 and the carrying cost per seat per year is $5, and assuming the production rate is constant at 100,000 buses per year, the EOQ formula would be used to find the order quantity that minimizes total costs. However, without the direct EOQ calculation provided, we can infer that the total carrying cost associated with the EOQ would be a function of these given costs. The correct answer, based on the information provided and typical EOQ calculations, would involve the carrying cost per unit and the total number of units. Since the specific EOQ calculation details (like demand rate, order cost, and carrying cost) are not fully provided, the answer closest to a reasonable carrying cost given the high production volume and provided costs is $3,163, which suggests a significant inventory level but not excessively high carrying costs.

Big Bus Company Produces Buses