In ABC Printing, Queen's black is a popular input with an annual demand of 50,000 gallons, ordering cost of $50 per order, and holding cost of $5 per unit per year; the economic order quantity is 1,000. Hence during the year, they used 1,000 as the order quantity. An audit of the costs revealed that the true ordering cost was only $25 and the true holding cost was $10 per gallon per year. The correct order quantity would have been 500. How much did ABC lose due to incorrect cost information during the year?
A) 0
B) 1,250
C) −1,250
D) 500
E) Cannot be found without additional information.

Question

Quizplus · Accepted Answer

The loss due to incorrect cost information can be calculated by comparing the total costs incurred using the incorrect order quantity (1,000 gallons) with the total costs that would have been incurred using the correct order quantity (500 gallons). The difference in these total costs represents the loss.

In ABC Printing, Queen's Black Is a Popular Input with an Annual