34 The following graph shows four cost curves: annual inventory carrying cost cu

Question

34 The following graph shows four cost curves: annual inventory carrying cost curve An annual order cost curve e e An annual inventory total cost curve A fixed cost curve with respect to order quantity Curve 1 Curve 2 Curve 3 Order Quantity Which of the curves is the annual inventory carrying cost curve? A. Curve 1. B. Curve 2. C. Curve 3. D. Curve 4 Questions 29 and 30 are based on the following information. Based on an EOQ analysis (assuming a constant domand). the optimal order quanity is 2,500. Tho company desires a safoty slock of 500 units A 5-day load timo ls needod for dalivory, Annual costs equal 25% of the averagoinvonary level. The company pays S4 per uit to buy which it solls for $8. The company pays $150 to place a detalod order, and the monibly domand for the product is 4,000 units. 35. Annual inventory carrying costs equal A $750 B. $1,250 C. $1,750 D. $2,250 36, Total invontory ordor costs por yoar oqua A $1,250 8 $2,400 C $2.880 D $3,600

Explanation / Answer

34.

Curve 1: This is the total cost curve, since it is above all other curves.

Curve 2: This carrying cost curve, it is varying directly with the size of the order. It is truly acting like a variable cost.

Curve 3: This is the fixed cost curve, since it is unchanged by the change in quantity.

Curve 4: This is the ordering cost, since it is downward slopping from left to right which means increasing quantity decreases such cost.

Taking into consideration of the entire above, curve 2 should be appropriate.

Answer: B

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