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

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?

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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