question archive The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order $300 Relevant carrying costs per year: Required annual return on investment 10% Required other costs per year $2
Subject:AccountingPrice:2.87 Bought7
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order $300 Relevant carrying costs per year: Required annual return on investment 10% Required other costs per year $2.80 Annual demand is 20,000 packages per year. The purchase price per package is $32. What are the total relevant costs, assuming the quantity ordered equals 1,000 units?
Answer:
total relevant costs, assuming the quantity ordered equals 1,000 units
Thus:
EOQ = 1000 units
Unit carrying costs = ($32 x 0.10) + $2.80 = $6
total relevant costs = [ (annual demand * purchase price) / EOQ] + [ (EOQ* Unit price)/2]
total relevant costs = [ (20000 * 300) / 1000] + [ (1000*6)/2] = $9000