i) Determine the highest number of shirts that should be purchased by the Gift Shop in order to minimize stock administration cost. ii) What is the total stock administration costs? iii)Using the EOQ policy, determine the re-order level, minimum inventory level and maximum inventory level for the T Shirts.
SOUND CORE WIRELESS sells a variety of mobile telephone accessories including several brands of
Wireless Earbuds Bluetooth Headphones. The earbuds are sold in cases, with each case containing a pair of
earbuds. SOUND CORE began the last quarter (October to December) of 2021 with 30 cases of the (TOZO
T6) earbuds at a total cost of $187,800. During the quarter the business completed the following transactions
relating to the “TOZO T6” earbuds:
| October 8 | 8 cases were purchased at a cost of $6,202 each. In addition, the business paid a freight charge of $248 cash on each case to have the inventory shipped from the point of purchase to their place of business. |
| October 31 | The sales for October were 85 cases which yielded total sales revenue of $809,030. (25 of these cases were sold on account to three longstanding customers) |
| November 4 | A new batch of 67 cases was purchased at a total cost of $465,650 |
| November 10 | 5 of the cases purchased on November 4 were returned to the supplier, as they were not of the type nor model ordered. |
| November 30 | During the month 60 cases were sold at a price of $10,350 each. |
| December 4 | A customer, to whom 9 cases were sold during the first business day of November, returned 3 of the cases, as they were of another make and model. |
| December 10 | Owing to an increased demand, a further 115 cases were purchased at a cost of $7,900 each; these were subject to a trade discount of 2% each. |
| December 30 | 121 cases were sold during December at a unit selling price of $11,085. |
| December 31 | An actual count of inventory was carried out which revealed that there were 34 cases of the “TOZO T6” brand of merchandise in the store room |
Unless otherwise stated, assume that all purchases were on account and received on the dates stated.
Required: The West Indies School Book Shop sells T Shirts emblazoned with the school’s name and logo. The
shirts cost $2,000 each and management estimates that 900 T Shirts will be sold during each month of
the year. The annual holding cost for a unit of that inventory is estimated to be 1.5% of the purchase
price. It costs the Book Shop $500 to place a single order.
The maximum sale for the Book Shop for any one week is 300 shirts and minimum sales 150
shirts. The supplier takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is
placed.
i) Determine the highest number of shirts that should be purchased by the Gift Shop in order to
minimize stock administration cost.
ii) What is the total stock administration costs?
iii)Using the EOQ policy, determine the re-order level, minimum inventory level and maximum
inventory level for the T Shirts.
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