Question

accounts multiple choice

The graph below depicts the components of total stock administration costs for an item of inventory Cost(s) Z Quantity (units) Nhat does the point labelled Z represent? Select one: a. Ordering costs b. Storage costs C. The economic order quantity d. Total stock administration costs

Answer 1

1. Label Z represents the economic order quantity. Option C is the answer.

2. Total Stock Administration Cost under EOQ is sum of ordering and carrying costs. Option D is the answer.

3. Label III represents ordering costs. Option C is the answer.

4.

First we need to calculate average consumption as follows :

Average consumption = (Minimum level + Maximum level) / 2 = (90 + 260)/2 = 175 units

Average time = (Minimum time + Maximum time) / 2 = (11 + 15) / 2 = 13 days

Minimum stock level = Re-order level - (Average consumption * average time) = 3150 units - (175 units * 13 days) = 875 units

Therefore, Option C is the answer.

5. Option B is the answer.

6. Substituting the value in the EOQ formula :

40 units = √(2 * 2000 * 5) / carrying cost per unit = $0.08. Option D is the answer.

7. Option D is the answer. EOQ = 2000 units, therefore, holding cost annually = $1000 + setup cost per order = $1000 = $2000