Figure 7-1 Use the Graph Below to Answer the Question(s)

question 44

Multiple Choice

Figure 7-1
Use the graph below to answer the question(s) .
-Which of the following is TRUE in relation to Figure 7-1?

• A)Curve J represents the annual ordering cost,and curve K represents the annual holding cost.
• B)A lot size of G has an annual total cost of about C.
• C)At lot size H both holding costs and ordering costs exceed the annual total cost.
• D)The EOQ is most likely lot size G,and curve L is the annual ordering cost curve.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials and labor.

Marginal Cost

The incremental cost involved in creating an extra unit of a product or service.

Diseconomies of Scale

Occur when a firm's costs per unit increase as its output increases, opposite to economies of scale.