The Inventory Management Costs for a Certain Product Are S

question 135

Essay

The inventory management costs for a certain product are S = $8 to order,and H = $1 to hold for a year.Annual demand is 2400 units.Consider the following ordering plans: (a)order all 2400 at one time, (b)order 600 once each quarter,and (c)order 200 once each month.Calculate the annual holding and setup costs associated with each plan.(d)Is there another plan,cheaper than any of these? Calculate this order quantity along with its total annual holding and setup costs.

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Definitions:

Absorption Costing

This method in accounting ensures the total cost of producing a product encompasses expenses on direct materials, direct labor, and all overhead costs, both variable and fixed.

Cost-plus Pricing

A pricing strategy where the selling price is determined by adding a specific markup to the cost of producing or purchasing the product.

Return on Investment

Return on investment is a measure used to evaluate the efficiency or profitability of an investment, calculated as net income divided by the initial cost of the investment.

Selling Price

The amount at which a product or service is offered to customers, factoring in costs, desired profit margins, and market conditions.