When unit demand is 18000, the annual relevant ordering cost is $150 per order, and the order quantity is 1500, the annual relevant ordering cost would be __________?
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Answer: D. $180
Explanation
Annual relevant ordering cost divides annual demand by order quantity, multiplied by cost. Dividing eighteen thousand by fifteen thousand units, then multiplying by one hundred fifty, gives one hundred eighty dollars. This economic order formula calculates total annual expenses associated with placing purchase orders. Ordering costs include administrative expenses incurred each time a purchase order is placed. Annual demand represents the total quantity of inventory required by the firm annually. Order quantity refers to the batch size of inventory ordered per shipment delivery.
Inventory management uses ordering cost calculations to optimize purchasing schedules. Supply chain analysts balance ordering costs against carrying costs to minimize expenses. Minimizing relevant ordering costs improves overall working capital efficiency for businesses. Option A overstates the annual ordering cost due to an incorrect division factor. Option B suggests an inaccurate cost calculation that fails to match the formula. Option C represents an arbitrary figure unrelated to the given inventory parameters.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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