Martin-Pullin Case Study

An organization will try to plan for vacancies and market fluctuations but derived demand can be difficult to plan for if you have a product or service that has very little discernible

1. a. The simulation indicates that 584 is the optimum stocking quantity. Daily profit at this stocking quantity is $331.4346.

12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is the total amount expressed on a per unit basis?

The next task is to provide the optimum number of shoelaces to order, using appropriate cost balancing. The economic order quantity (EOQ) is the order amount that allows for an optimum level of materials at the lowest cost possible. There is a demand ofr 300,000 shoelaces per year. The setup cost is $125 per order. There is a $.10 holding cost per unit. The optimal order quantity recommended is 27,386.13 shoelaces per order, with a maximum inventory of 27,386.13. This means that we will order just the amount of shoelaces needed to fulfill current production orders. The average inventory is 13,693.06 shoelaces. There will be approximately 10.95 orders per year. The annual setup cost is $1,369.31, and the annual holding cost is $1,369.31. This makes the total cost per year $2, 738.61. This decision tool allows us to calculate the correct amount needed per order to ensure that we are lowering operating and holding costs, while keeping production properly stocked.

Cost of inventory is determined using the average method; inventory is stated at the lower of cost or market. +pB13

Second, the manufacturing order costs for non-stocked items was calculated by dividing total manufacturing order costs for non-stocked items by the number of orders for non-stocked products. Non-stocked products have additional costs associated with processing orders that went above and beyond the costs associated with a stocked product. The third step involved determining what the S"A allocation factor would be for calculating the S"A volume related costs. This allocation factor would then be applied to manufacturing COGS. The fourth and final step involved the calculation of the operating profit based on backing out volume related costs from sales revenues followed by deducting S"A and manufacturing order costs from the resulting gross margin to arrive at a operating profit.

Dong Hai Supply Annual Inventory Carrying Cost = 0.322 * ((24,037*80.11) + (24,037/551)*182) = $622,601.

4. What inventory method is used to value inventories? Does this method reflect current cost at year-end?

330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.

2.2 Inventories (AASB 1019) as a general principle, inventories are valued at the lower of cost (including fixed and variable factory overheads where applicable) and net realizable value. Cost is determined on the basis of first-in-first-out, average or standard, whichever is the most appropriate in each case.

The firm initially produces where MR=MC charging price P1 and quantity Qa. At this price the firm has a large amount of

Supplier A: EOQ = Square root of (2 x 1500 x $1,000) = S.R. of 3,000,000 = 209

In the current situation, the order is set to every Monday which means a total number of 50 orders for the whole period, and the average Inventory calculated from the given data is 5 units. Therefore, total cost of the current situation calculation will be as follows:

shipments x 500$ 70 nr. shipments x 500$ 220 nr. shipments x 500$ number of units per batch total overhead cost overhead cost / unit cost per unit

such planning is best seen when one considers the several areas where it is helpful: Forecasting