Question

Can someone please confirm if the answers are right? If not, would you please provide the right answer(s)? Thanks!

QUESTION 4 Which of the following is NOT an application of breakeven analysis? A determine the amount of an item to produce & sell so as to recover an initial investment B. choose between making a product in-house and purchasing it from a supplier C. determine the quantity of an item to produce so that setup costs and holding costs are equal D. choose between purchase & construction of a new site and remodeling an existing site QUESTIONS Good Tire Distributors buys 48.000 tires over the course of a year at a cost of $20 each from its parent company - Good Tire, Inc. - for resale to local retailers. Each order incurs a foxed cost of $75 for processing and delivery charges and arrives 1 week after the order is placed. The holding cost is 55/tire/year. Assuming that the company operates 50 weeks a year, at what inventory level reorder point should Good Tire Distributor place orders with its parent company? O A 40 3.600 C000 D. 1200

Answer 1

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Answers::

1. Answer: C (Determine the quantity of an item to produce so that set up costs and holding costs are equal)

Rationale: Finding an optimal quantity order for which the holding costs and the setup cost are equal and minimum is an application of EOQ (Economic Order Quantity)

2. Answer: C (960)

Rationale:

Re-order point = Weekly demand × Lead time

Annual demand (D) = 48,000

Number of working weeks = 50

Weekly demand = 48,000 / 50

weekly demand = 960

Given lead time = 1 week

Re-order Point = Weekly demand × Lead time

Re-order point = 960 × 1

Re-order point = 960