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 $10 per monitor. If Very Technical sells 5,000 computer monitors a year and they order 250 monitors, what is the annual ordering cost of the monitors?
A)$110,000
B)$67,000
C)$85,250
D)$53,000

Question

Quizplus · Accepted Answer

The annual ordering cost is calculated by dividing the total number of monitors sold per year by the number of monitors per order, and then multiplying by the cost per order. Here, it's (5000 / 250) * $150 = 20 * $150 = $3,000. However, the correct calculation for ordering cost should actually consider the number of orders per year multiplied by the cost of placing an order, which is not $150 (the cost per monitor order) but rather the variable cost of placing an order, which is $10 per monitor. The mistake in the explanation is the misinterpretation of the $150 cost, which is the cost for each order of monitors, not the cost of placing an order. The correct calculation for the annual ordering cost should involve the number of orders per year, which is the annual demand (5,000 monitors) divided by the order size (250 monitors per order), resulting in 20 orders per year. The cost of placing each order is given as $10 per monitor, which was incorrectly applied in the explanation. The correct approach to find the annual ordering cost would involve the ordering cost per order, not the cost per monitor or the variable cost per monitor. Given the information, the correct calculation was not provided in the explanation, leading to confusion. The actual calculation should focus on the cost associated with ordering, not the cost per monitor or the variable cost per monitor.

Very Technical Is a Firm That Sells Computing Equipment