In ABC Printing, Queen's Black Is a Popular Input with an Annual

question 35

Multiple Choice

In ABC Printing, Queen's black is a popular input with an annual demand of 50,000 gallons, ordering cost of $50 per order, and holding cost of $5 per unit per year; the economic order quantity is 1,000. Hence during the year, they used 1,000 as the order quantity. An audit of the costs revealed that the true ordering cost was only $25 and the true holding cost was $10 per gallon per year. The correct order quantity would have been 500. How much did ABC lose due to incorrect cost information during the year?

• A) 0
• B) 1,250
• C) −1,250
• D) 500
• E) Cannot be found without additional information.

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Definitions:

Probability Range

A span of values within which a random variable is expected to fall, governing the likelihood of different outcomes.

Risk Premium

The return in excess of the risk-free rate of return that investors demand for choosing a risky investment.

Small Companies

Businesses with relatively small market capitalization or revenues.