A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities. The following information relates to the forthcoming period:
Order costs = $25 per order Holding costs = 10% of purchase price Annual demand = 20,000 units Purchase price = $40 per unit EOQ = 500 units No safety inventory is held.
What are the total annual costs of inventory (i.e. the total purchase cost plus total order cost plus total holding cost)?
A large store selling office furniture stocks a popular chair for which the following information is available:
Annual demand: 4,000 chairs
Maximum inventory: 75 chairs
Minimum inventory: 20 chairs
Lead time: 5 days
Re-order quantity: 100 chairs
What is the average inventory level?
Which of the following definitions best describes a cost driver?
ABC recognises the complexity of modern manufacturing by the use of multiple cost pools.
Direct labour hours or direct machine hours are used to trace costs to products occurs with absorption costing, but not with ABC.
The cost driver for quality inspection is likely to be batch size
ABC is not a system that is suitable for use by service organisations.
Are the following statements about Activity Based Costing (ABC) true or false?
In a system of ABC, there is no under- or over-absorption of overheads.
Are the following statements about Activity Based Costing (ABC) true or false?
In a system of ABC, a larger proportion of overheads is attributed to low volume products than in a traditional absorption costing system.
The following statements have been made about activity-based costing.
(1) Unlike traditional absorption costing, ABC identifies variable overhead costs for allocation to product costs.
(2) ABC can be used as an information source for budget planning based on activity rather than incremental budgeting.
Which of the above statements is/are true?