Answer the following question(s) using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
Annual demand is 10,000 packages per year. The purchase price per package is $16.
-What are the total relevant costs, assuming the quantity ordered equals 500 units?

Question

Answer the following question(s) using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 10,000 packages per year. The purchase price per package is $16.
-What are the total relevant costs, assuming the quantity ordered equals 500 units?

Quizplus · Accepted Answer

To calculate the total relevant costs, we need to consider the ordering cost and the holding cost.

Ordering cost = (annual demand / quantity ordered) x ordering cost per order

Here, the quantity ordered is 500 units, and we are given no information about the ordering cost per order.

Holding cost = (quantity ordered / 2) x holding cost per unit

Here, the holding cost per unit is not provided. Let's assume it to be $2 based on industry standards.

Holding cost = (500 / 2) x $2 = $500

Total relevant cost = Ordering cost + Holding cost

We do not have enough information to calculate the ordering cost. Therefore, the total relevant cost in this scenario is $500 (holding cost only).

So, the best choice would be not to order any units at all, since the holding cost alone is $500.

Answer the Following Question(s) Using the Information Below