Very Technical is a firm that sells computing equipment. It costs Very Technical $50 for each order of computer monitors and the variable cost of placing an order is $2 per monitor. If Very Technical sells 1,000 computer monitors a year and they order 25 monitors, what is the annual ordering cost of the monitors?
A)$50,000
B)$4,000
C)$2,500
D)$10,000

Question

Quizplus · Accepted Answer

The annual ordering cost can be calculated by dividing the total annual demand by the order quantity and then multiplying by the cost per order. Here, the total demand is 1,000 monitors, the order quantity is 25 monitors, and the cost per order is $50. So, the annual ordering cost = (1,000 / 25) * $50 = 40 * $50 = $2,000. However, the question also includes a variable cost of $2 per monitor, which was not accounted for in the calculation. The correct calculation for the annual ordering cost should include both the fixed cost per order and the variable cost per monitor. Since the variable cost is not dependent on how many times an order is placed but on the total number of monitors ordered annually, the initial calculation was incorrect. The correct answer should solely be based on the fixed cost associated with placing orders, which was correctly calculated as $2,000, not including the variable cost per monitor in this context. Therefore, the explanation mistakenly included an incorrect interpretation of how to calculate the annual ordering cost, focusing solely on the fixed ordering cost without correctly incorporating the variable cost per monitor, which in this context, should not alter the calculation of the annual ordering cost based on the information provided.

Very Technical Is a Firm That Sells Computing Equipment