Final answer:
The statement simplifying total annual cost to a basic equation is b) false as the total cost includes additional expenses beyond set up, holding, safety stock, and in-transit inventory costs, including purchasing, labour, and overhead costs.
Step-by-step explanation:
The statement that generally, total annual cost equals set-up cost plus holding cost plus safety stock cost plus average in-transit inventory cost is False. Total annual cost in the context of inventory management typically includes costs such as the purchasing cost of the items themselves, set-up costs, holding costs, and sometimes costs related to safety stock and in-transit inventory. However, total annual costs can also encompass other expenses such as opportunity costs, labour, and other overheads that are associated with producing or acquiring goods. Therefore, the total cost of producing and selling products is more complex and includes more variables than the formula suggests. For a better understanding, remember that when calculating the total cost of buying a basket of goods over a time period, you include the actual purchase costs of the goods as well as any additional costs incurred such as delivery or handling fees. If we were to calculate the total quantity spent over a year using more realistic prices and time frames, the number might not be as simple as the equation provided. Moreover, it's important to note that short run costs can differ from long run costs, and these differences should be factored into the total cost calculations in business scenarios.