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. Very Technical pays an annual holding cost of $6 per monitor. If Very Technical sells 1,000 computer monitors a year and they order 25 monitors, what is the total annual cost of the monitors?
A)$4,075
B)$3,150
C)$5,025
D)$7,250

Question

Quizplus · Accepted Answer

The total annual cost of the monitors is the sum of the ordering cost, the holding cost, and the variable cost. The ordering cost is $50 per order, and Very Technical places 40 orders per year (1,000 monitors / 25 monitors per order). So the ordering cost is $50 * 40 = $2,000. The holding cost is $6 per monitor, and Very Technical holds an average of 12.5 monitors (25 monitors / 2). So the holding cost is $6 * 12.5 = $75. The variable cost is $2 per monitor, and Very Technical sells 1,000 monitors per year. So the variable cost is $2 * 1,000 = $2,000. The total annual cost is $2,000 + $75 + $2,000 = $4,075.

Very Technical Is a Firm That Sells Computing Equipment