The Total Annual Cost Is Given by the Sum of Ordering

question 76

Multiple Choice

The total annual cost is given by the sum of ordering costs and holding costs.At the lowest total annual cost,______.

• A)the total annual ordering cost is less than the total annual holding cost
• B)the total annual ordering cost is equal to the total annual holding cost
• C)the total annual ordering cost is more than the total annual holding cost
• D)the total annual ordering cost is twice the total annual holding cost

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Definitions:

Variable Administrative Expense

Costs that vary directly with changes in business activity levels, like sales commissions or raw material costs.

Direct Materials

Raw materials that are directly incorporated into a finished product and can be easily traced to it.

Discretionary Fixed Costs

Discretionary fixed costs refer to fixed costs that can be altered in the short term by current managerial decisions, such as advertising or research and development expenses.

Management Decisions

These are choices made by the executives of a company affecting its direction and operation.