On an Annual Requirement of 100 Items Spread Evenly Throughout

question 7

Multiple Choice

On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $120. If the inventory carrying cost is 25 percent per year and assuming no ordering costs:

• A) buying 100 at a time will save the company $2,500 per year.
• B) buying 100 at a time will save the company $2,000 per year.
• C) buying 100 at a time will save the company $1,100 a year.
• D) buying 100 at a time will save the company $900 per year.
• E) buying 100 at a time will save the company $200 a year.

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Definitions:

Forward Buying

The practice of purchasing stock in larger quantities than immediately needed to take advantage of discounts or to hedge against price increases.

Peak Demand Period

The time frame when the demand for a product or service reaches its highest point.

Pricing Decisions

These are determinations made by businesses about how much to charge for their products or services, influenced by costs, demand, and competitive factors.

Profitability

The ability of a business to earn a profit, which is the surplus remaining from revenue after all costs are deducted.