Consider the Following Requirements for an Office Chair Product

question 4

Multiple Choice

Consider the following requirements for an office chair product. The company has a setup cost of $90, a holding cost per week of $5, beginning inventory of 300, and lead time of 2 weeks. What is the total inventory cost (setup plus holding) of using a lot-for-lot policy for this six-week inventory period?

• A) $1770
• B) $1500
• C) $270
• D) $1680
• E) $3270

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Definitions:

Overhead

All indirect costs of running a business that are not directly associated with the production of goods or services, such as rent, utilities, and administrative salaries.

Direct Labor

The wages and benefits paid to employees who directly manufacture or produce the products of a company.

Labor Costs

The total expenses that a company incurs due to the employment of staff, including wages, benefits, and taxes.

Predetermined Overhead Rate

An estimated charge per unit of activity used to allocate overhead costs to products or services, calculated before the accounting period begins.