Effect of error in cost estimate Voltair Company sells low-voltage electric motors for use in robots and servomechanisms. The company made the following estimates for next year's operations;

Ex. 15-14 Effect of two errors in estimate Refer to the data on the Voltair Company in Exercise 15-13. Actual demand is 40,000 units.

Exercise 15-13

Effect of error in cost estimate Voltair Company sells low-voltage electric motors for use in robots and servomechanisms. The company made the following estimates for next year's operations;

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Expected selling price Expected unit cost $163 108 Expected annual demand 42,000 units Inventory carrying cost 15% of cost $260 REQUIRED Cost of placing an order Actual cost of the motors next year will be $120 per unit. a. Compute the economic order quantity for the motors, with management's estimates and also with the correct cost. b. Calculate the cost of estimating unit cost of the motors incorrectly.