RAJ Company and LEE Company Each Annually Order the Exact

question 12

Multiple Choice

RAJ Company and LEE Company each annually order the exact same amount of an item from the same supplier (They each have the exact same annual demand from their customers for this item and the lead time from the supplier is the same for both companies) . There is no variation at all for either company in either daily demand or lead time from the supplier.They pay the exact same price to the supplier for the item. They both figure that their ordering cost is $50 per order.However, RAJ has determined its annual inventory carrying cost is 20%, whereas LEE figures it is only 10%. Which of the following would be true?

• A)RAJs EOQ is higher than Lee's EOQ
• B)LEE's EOQ is higher than RAJ's EOQ
• C)both have the same EOQ

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Definitions:

Fixed Capital

Refers to the long-term assets used in production, including buildings, machinery, and equipment, which are not frequently replaced.

Total Variable Cost

The total of expenses that change in proportion to the activity or production level of a business.

Economic Costs

The total cost of choosing one action over another, including both explicit and implicit costs.

Total Cost

The total amount of money spent on producing goods or services, encompassing both constant and fluctuating expenses.