1.

The following data refer to various annual costs relating to the inventory of a single-
product company:
Unit transportation-in on purchases $0.20
Storage per unit 0.12
Insurance per unit 0.10
Annual interest foregone from alternate investment of funds $800
Annual number of units required 10,000
What is the annual carrying cost per unit?
A. $0.30 C. $0.42
B. $0.32 D. $0.50

2. Phonic Goods is a distributor of videotapes. Tape-Disk Mart is a local retail outlet which sells blank and
recorded videos. Tape-Disk Mart purchases tapes from Phonic Goods at $3.00 per tape; tapes are
shipped in packages of 20. Phonic Goods pays all incoming freight, and Tape-Disk Mart does not inspect
the tapes due to Phonic Goods' reputation for high quality. Annual demand is 104,000 tapes at a rate of
4,000 tapes per week. Tape-Disk Mart earns 20% on its cash investments. The purchase-order lead time
is two weeks. The following cost data are available:
Relevant ordering costs per purchase order $90.50
Carrying costs per package per year:
Relevant insurance, materials handling, breakage, etc., per year $ 4.50
What is the required annual return on investment per package?
A. $0.60 C. $12.00
B. $2.50 D. $60.00

39. Penguin Company manufactures winter jackets. Setup costs are $2.00. Penguin
manufactures 4,000 jackets evenly throughout the year. Using the economic order quantity
approach, the optimal production run would be 200 when the cost of carrying one jacket in
inventory for one year is:
A. $0.05 C. $0.20
B. $0.10 D. $0.40
3. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If
ordering costs are $200 and carrying costs are $0.50 per unit per year, what is the estimated total annual
usage?
A. 2,400 units C. 7,200 units
B. 6,000 units D. 28,800 units

4. The following information are given:

Optimal production run in units 2,000
Average inventory in units 1,000
Number of production runs 5
Cost per unit produced P75
Desired annual return on inventory investment 18%
Set-up costs per production run P5,000

If the units will be required evenly throughout the year, the total annual relevant costs using the economic-
 order-quantity approach is
A. P5,000 C. P75,000
B. P38,500 D. P150,000

5. One of the products that Nature Way Health Products sells is a magnetic back support. The ordering
cost related to this product is P12.50 per order. The cost of carrying one item of inventory for one year
is P16.00. The business sells 40,000 of this type of product evenly throughout the year. How much is
the total ordering costs per year and the total carrying costs per year at the economic order quantity?
A. B. C. D.
Ordering costs P1,562.50 P1,562.50 P2,000.00 P4,000.00
Carrying costs P1,562.50 P2,560.00 P2,000.00 P4,000.00