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A retail store purchases computer software from a distributor for resale. For an

ID: 421727 • Letter: A

Question

A retail store purchases computer software from a distributor for resale. For an upcoming promotion, the retailer needs to determine the best order size for a one-time purchase. One of the products is a word processing software program that will have a special sale price of $350. The program can be purchased from the distributor for $250 each. If the program has leftover inventory, the retail store can return it to the distributor and get only $100 back per copy.

What are the respective unit underage (understocking) cost and overage (overstocking) cost for the retail store?

Question 2 options:pick one

Underage cost is $100/unit, Overage cost is $150/unit

Underage cost is $150/unit, Overage cost is $150/unit

Underage cost is $250/unit, Overage cost is $100/unit

Underage cost is $350/unit, Overage cost is $100/unit

a)

Underage cost is $100/unit, Overage cost is $150/unit

b)

Underage cost is $150/unit, Overage cost is $150/unit

c)

Underage cost is $250/unit, Overage cost is $100/unit

d)

Underage cost is $350/unit, Overage cost is $100/unit

Explanation / Answer

Cost price (Cp) = $250

Selling price (SP) = $350

Salvage value (V) = $100

Underage cost = SP-Cp = $350-$250 = $100

Overage cost = Cp-V = $250-$100 = $150

So the answer is option a

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