Question 1
Relevant total costs in the economic order quantity decision model equal relevant ordering costs plus which of the following costs?
◦ carrying costs
◦ stockout costs
◦ quality costs
◦ purchasing costs
Question 2
Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.85 per ball; the golf balls are shipped in cartons of 42. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 158,520 golf balls at a rate of 3191 balls per week. Martin's Golf Supplies earns 7% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
| Relevant ordering costs per purchase order | $130.00 |
Carrying costs per carton per year:
Relevant insurance, materials handling,
| breakage, etc., per year | $0.77 |
If Martin's makes an order (1 / 12 of annual demand) once per month, what are the relevant total costs? (Round costs to the nearest cent and quantities to the nearest whole number.)
◦ $1560.00
◦ $514.09
◦ $2075.03
◦ $3120.00
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