Assume That Annual Demand for a Part Is 40,000 Units,the

question 99

Multiple Choice

Assume that annual demand for a part is 40,000 units,the ordering cost is $5 per order and the annual holding cost of carrying inventory in stock is 10% of the cost of the unit.A quantity discount will reduce the unit price from $5.00 for an order placed between 0 to 2,499 units to $4.95 for an order of the size of 2,500 units or more.Using a price-break inventory model,which of the following is the optimal order quantity?

• A)894 units
• B)899 units
• C)2,499 units
• D)2,500 units
• E)2,709.4 units

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual units of production, based on a specific activity base.

Job-Order Costing

An accounting method that tracks the costs associated with producing a specific batch of products or performing a specific service.

Manufacturing Overhead Costs

Indirect costs associated with manufacturing, including costs of running the factory, maintenance, and utilities, that cannot be directly traced to a product.

Job-Order Costing

An accounting system that accumulates costs according to individual jobs rather than processes or time periods.