All Things Auto is retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the “DieHard” brand at a total cost of $168,200. The following transactions, relating to the “DieHard” brand were completed during the quarter: October 5 Purchased 15 batteries at a cost of $17,020 each. October 14 Sold 18 batteries at $22,250 per battery October 22 Purchased 24 batteries at a cost of $18,175 each but the supplier gave a 4% quantity discount. November 10 Sold 15 batteries to Orion Auto Ltd and 10 batteries to Brown’s Auto Detailing at a price of $23,990 each. November 12 Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, All Things Auto paid $288 in cash on each battery to have the inventory shipped from the vendor’s warehouse to their location. November 27 Sold 23 batteries which yielded total sales revenue of $576,840. (8 of these batteries were sold on account to Middletown Fuel & Auto Accessories a longstanding customer) November 30 A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the “Duralast” brand. December 2 In preparation for the festive season, All Things purchased 25 batteries at a total cost of $474,500. December 15 5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. December 30 Sold 22 batteries to two customers (Omega Traders & Middleton Auto Accessories) at a selling price of $26,950 each. December 31 An actual count of inventory was carried out which revealed that there were 9 units of the “DieHard” brand in the warehouse. All purchases were on account and received on the dates stated. Required: Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single order. The maximum number of units sold for any one week is 150 and minimum sales 80 units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate. 1. What is the cost minimizing solution for this product each year? 2. Determine the re-order level, minimum inventory level and maximum inventory level for the product.
All Things Auto is retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the “DieHard” brand at a total cost of $168,200.
The following transactions, relating to the “DieHard” brand were completed during the quarter:
|
October 5 |
Purchased 15 batteries at a cost of $17,020 each. |
|
October 14 |
Sold 18 batteries at $22,250 per battery |
|
October 22 |
Purchased 24 batteries at a cost of $18,175 each but the supplier gave a 4% quantity discount. |
|
November 10 |
Sold 15 batteries to Orion Auto Ltd and 10 batteries to Brown’s Auto Detailing at a price of $23,990 each. |
|
November 12 |
Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, All Things Auto paid $288 in cash on each battery to have the inventory shipped from the vendor’s warehouse to their location. |
|
November 27 |
Sold 23 batteries which yielded total sales revenue of $576,840. (8 of these batteries were sold on account to Middletown Fuel & Auto Accessories a longstanding customer) |
|
November 30 |
A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the “Duralast” brand. |
|
December 2 |
In preparation for the festive season, All Things purchased 25 batteries at a total cost of $474,500. |
|
December 15 |
5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. |
|
December 30 |
Sold 22 batteries to two customers (Omega Traders & Middleton Auto Accessories) at a selling price of $26,950 each. |
|
December 31 |
An actual count of inventory was carried out which revealed that there were 9 units of the “DieHard” brand in the warehouse. |
All purchases were on
Required:
Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single order.
The maximum number of units sold for any one week is 150 and minimum sales 80 units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate.
1. What is the cost minimizing solution for this product each year?
2. Determine the re-order level, minimum inventory level and maximum inventory level for the product.
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