Exhibit 3.5
The following questions are based on this problem and accompanying Excel windows.
A company is planning production for the next 4 quarters. They want to minimize the cost of production. The production cost is stable but demand and production capacity vary from quarter to quarter. The maximum amount of inventory which can be held is 12,000 units and management wants to keep at least 3,000 units on hand. Quarterly inventory holding cost is 3% of the cost of production. The company estimates the number of units carried in inventory each month by averaging the beginning and ending inventory for each month. There are currently 5,000 units in inventory. The company wants to produce at no less than one half of its maximum capacity in any quarter.
-Refer to Exhibit 3.5. What formula should be entered in cell C18 in the accompanying Excel spreadsheet to compute the quarterly carrying costs?
A) =C15*C3+C6
B) =C15*(C3+C6)
C) =C15*C3/2
D) =C15*(C3+C6)/2

Question

Exhibit 3.5
The following questions are based on this problem and accompanying Excel windows.
A company is planning production for the next 4 quarters. They want to minimize the cost of production. The production cost is stable but demand and production capacity vary from quarter to quarter. The maximum amount of inventory which can be held is 12,000 units and management wants to keep at least 3,000 units on hand. Quarterly inventory holding cost is 3% of the cost of production. The company estimates the number of units carried in inventory each month by averaging the beginning and ending inventory for each month. There are currently 5,000 units in inventory. The company wants to produce at no less than one half of its maximum capacity in any quarter.   
-Refer to Exhibit 3.5. What formula should be entered in cell C18 in the accompanying Excel spreadsheet to compute the quarterly carrying costs?
A) =C15*C3+C6 
B) =C15*(C3+C6) 
C) =C15*C3/2 
D) =C15*(C3+C6)/2

Quizplus · Accepted Answer

The correct formula to compute the quarterly carrying costs is =C15*(C3+C6)/2. This formula takes into account both the cost per unit (C3) and the ordering cost (C6), divides the sum by 2, and multiplies by the average inventory level (C15), which is a common approach to calculate carrying costs.

Exhibit 3.5 The Following Questions Are Based on This Problem and Accompanying