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Holstein Computing manufactures an inexpensive audio card (Audio Max) for assembly into several models of its microcomputers. The annual demand for this part is 100,000 units. The annual inventory carrying cost is $5 per unit and the cost of preparing an order and making production setup for the order is $750. The company operates 250 days per year. The machine used to manufacture this part has a production rate of 2000 units per day.
a. Calculate the optimum lot size.
b. How many lots are produced in a year?
c. What is the average inventory for Audio Max?
d. What is the annual cost of preparing the orders and making the setups for Audio Max?
Contract Costs
Expenses directly related to securing and fulfilling a contract, including raw materials, labor, and overhead.
Percentage-Of-Completion Method
An accounting method used to recognize revenues and expenses of long-term projects proportionally to the degree of completion.
Long-Term Contracts
Agreements that extend over a long period, often used in industries like construction or supply services, specifying performance obligations and payment terms.
Percentage-Of-Completion Method
An accounting method used to recognize revenue and expenses of long-term projects proportionally to the degree of completion.
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