Figure 24-4
Buckner Manufacturing purchases components produced by Cochran Company in the manufacture of their main product. For the next year, Buckner expects to use a total of 30,000 parts. Buckner typically orders 500 units at a time. The cost of placing an order is £40, and the average annual cost of carrying one unit of inventory is £2.
-Refer to Figure 24-4. Buckner's total ordering cost is
A)£120.
B)£2,000.
C)£2,400.
D)£500.

Question

Quizplus · Accepted Answer

The total ordering cost is the number of orders multiplied by the cost of placing an order. The number of orders is the total number of parts needed divided by the number of parts ordered each time. So, the number of orders is 30,000/500 = 60. The total ordering cost is 60 * £40 = £2,400.

Figure 24-4 Buckner Manufacturing Purchases Components Produced by Cochran Company in the in the Manufacture