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 carrying cost is
A)£1,000.
B)£500.
C)£2,400.
D)£2,900.

Question

Quizplus · Accepted Answer

The total carrying cost is calculated as the average inventory level (which is half the order quantity) multiplied by the carrying cost per unit. Here, it's (500/2) * £2 = £500.

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