Question

Company ABC sells computers to shops. The average demand is 5,000 units each month. ABC incurs a fixed order placement, transportation, and receiving cost of $4,500 each time an order is placed. What is the purpose of the $4,500 cost?

Answer 1

The $4,500 cost covers the expenses associated with placing and receiving an order for computers.

Step-by-step explanation:

The purpose of the $4,500 cost is to cover the expenses associated with placing and receiving an order for computers.

These costs are considered fixed costs because they do not change with the number of units ordered.

By charging a fixed amount for each order, Company ABC can ensure that they are covering their expenses and maintaining profitability.