1. (Page 109 Problem 3) A gift shop sells Little Lentils cuddly animal dolls stuffed with dried lentils at a very steady pace of 10 per day, 310 days per year. The wholesale cost of the dolls is $5, and the gift shop uses an annual interest rate of 20 percent to compute holding costs. (Hint: h = $5 ∗ 0.2 = $1 per year) (a). If the shop wants to place an average of 20 replenishment orders per year, what order quantity should it use? (b). If the shop orders dolls in quantities of 100 (i. e., this is the optimal �), what is the implied fixed order cost (Hint: "fixed order cost" is � in the EOQ model)? (c). If the shop estimates the cost of placing a purchase order to be $10, what is the optimal order quantity?

Activity-based costing (abc) is not truly a cost collection mechanism as much as it is an inventory valuation method. the main purpose for implementing an activity-based cost system is to try to overcome some of the cost distortions that occur in traditional costing from product differences when there are variations in size and complexity. however, one of the disadvantages of utilizing abc is that the additional information gathering necessary to implement costing with that level of detail might be beyond the reach of some companies with resource or financial constraints. with this in mind, what kinds of industries or companies do you think would benefit most from using activity-based costing and why? in designing or modifying an accounting system to capture appropriate costs for abc, what considerations do you think would need to be made?