As an Inventory Manager, You Must Decide on the Order

question 10

Multiple Choice

As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 350 units. Ordering cost is $20 each time an order is placed, and the holding cost is 30 percent of the per-unit price. Your supplier provided the following price schedule.
What is the annual cost discrepancy between the optimal order policy and the second best order policy?

• A) Less than $5
• B) Between $5 and $10
• C) Between $10 and $20
• D) More than $20

---

Definitions:

Allowance for Doubtful Accounts

An accounting concept representing the estimated uncollectible amounts from customers' outstanding accounts.

Cash Realizable Value

The amount of cash expected to be obtained from the current sale or disposal of an asset after deducting any selling costs.

Accounts Receivable

Amounts outstanding from customers to a firm for goods or services that have been supplied but remain unpaid.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of a company's accounts receivable that may not be collectable.