NAPA Wine Company is a retailer which sells vintage wines. The company has established a policy of reordering inventory every 30 days. A consultant has suggested NAPA considering its inventory problem from the EOQ model viewpoint. The following constitute the relevant data. Ordering cost = $12 per order Carrying cost = 20% of purchase price Purchase price = $11 per unit Total sales for year = 5,000 units Safety stock = 0 How much total costs under the current policy exceed those under the EOQ?

NAPA Wine Company is a retailer which sells vintage wines. The company has established a policy of reordering inventory every 30 days. A consultant has suggested NAPA considering its inventory problem from the EOQ model viewpoint. The following constitute the relevant data. Ordering cost = $12 per order Carrying cost = 20% of purchase price Purchase price = $11 per unit Total sales for year = 5,000 units Safety stock = 0 How much total costs under the current policy exceed those under the EOQ?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 17P

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Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
Pietro expects to produce 50,000 units and sell 49,300 units. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Required: 1. Prepare a statement of cost of goods sold in good form. 2. What if the beginning inventory of finished goods decreased by 5,000? What would be the effect on the cost of goods sold?
Sterling Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An order to replenish the part requires a lead time of five days. Required: 1. Calculate the reorder point, using Equation 20.3. 2. Graphically display the reorder point, where the vertical axis is inventory (units) and the horizontal axis is time (days). Show two replenishments, beginning at time zero with the economic order quantity in inventory. 3. What if the average usage per day of the part is 500 units but a daily maximum usage of 575 units is possible? What is the reorder point when this demand uncertainty exists?
Click the Chart sheet tab. On the screen is a column chart showing ending inventory costs. During a deflationary period, which bar (A, B, or C) represents FIFO costing, which represents LIFO costing, and which represents weighted average? Explain your reasoning. On January 4 following year-end, Rio Enterprises received a shipment of 60 units of product costing 580 each. These units had been ordered by Del in December and had been shipped to him on December 27. They were shipped FOB shipping point. Revise the FIFOLIFO3 worksheet to include this shipment. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as FIFOLIFOT. Using the FIFOLIFO3 file, prepare a 3-D bar (stacked) chart showing the cost of goods sold and ending inventory under each of the four inventory cost flow assumptions. No Chart Data Table is needed. Use the values in the Calculations Section of the worksheet for your chart. Enter your name somewhere on the chart. Save the file again as FIFOLIFO3. Print the chart.
Ranger Industries has provided the following information at June 30: Other information: Average selling price, 196 Average purchase price per unit, 110 Desired ending inventory, 40% of next months unit sales Collections from customers: In month of sale20% In month after sale50% Two months after sale30% Projected cash payments: Inventory purchases are paid for in the month following acquisition. Variable cash expenses, other than inventory, are equal to 25% of each months sales and are paid in the month of sale. Fixed cash expenses are 40,000 per month and are paid in the month incurred. Depreciation on equipment is 2,000 per month. REQUIREMENT You have been asked to prepare a master budget for the upcoming quarter (July, August, and September). The components of this budget are a monthly sales budget, a monthly purchases budget, a monthly cash budget, a forecasted income statement for the quarter, and a forecasted September 30 balance sheet. The worksheet MASTER has been provided to assist you. Ranger Industries desires to maintain a minimum cash balance of 8,000 at the end of each month. If this goal cannot be met, the company borrows the exact amount needed to reach its goal. If the company has a cash balance greater than 8,000 and also has loans payable outstanding, the amount in excess of 8,000 is paid to the bank. Annual interest of 18% is paid on a monthly basis on the outstanding balance.
Crescent Company produces stuffed toy animals; one of these is Arabeau the Cow. Each Arabeau takes 0.20 yard of fabric (white with irregular black splotches) and eight ounces of polyfiberfill. Fabric costs 3.50 per yard and polyfiberfill is 0.05 per ounce. Crescent has budgeted production of Arabeaus for the next four months as follows: Inventory policy requires that sufficient fabric be in ending monthly inventory to satisfy 20 percent of the following months production needs and sufficient polyfiberfill be in inventory to satisfy 40 percent of the following months production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy. Each Arabeau produced requires (on average) 0.10 direct labor hour. The average cost of direct labor is 15 per hour. Required: 1. Prepare a direct materials purchases budget of fabric for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. 2. Prepare a direct materials purchases budget of polyfiberfill for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. 3. Prepare a direct labor budget for the last quarter of the year showing the hours needed and the direct labor cost for each month and for the quarter in total.
Dream Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Howe anticipates sales of 126,000 units per year, an ordering cost of P4 per order, and carrying costs of P1.008 per unit. The following year, the company. learns it can reduce ordering costs to P1 per order but that carrying costs will stay the same at P1.008 per unit. What is the total cost of inventory to be expected?
Meijer stores carries a specialty line of flavored syrups. One of the most popular of these is raspberry syrup which cells, on average, 55 bottles per week. Myers cost is nine dollars per bottle. Meijer has determined its order cost to be $54 in inventory Karen cost is 20%. Myers open for business 52 weeks per year. What is the EOQ? If Myers’s order the EOQ quantity each time, what will be the inventory turnover rate for the syrup?
You are in charge of inventory control of a highly successfulproduct retailed by your firm. Weekly demand for this itemvaries, with an average of 200 units and a standard devia-tion of 16 units. It is purchased from a wholesaler at a cost of$12.50 per unit. You are using a continuous review system tocontrol this inventory. The supply lead time is 4 weeks. Plac-ing an order costs $50, and the inventory carrying rate peryear is 20 percent of the item’s cost. Your firm operates 5 daysper week, 50 weeks per year.a. What is the optimal ordering quantity for this item?b. How many units of the item should be maintained assafety stock for 99 percent protection against stockoutsduring an order cycle?c. If supply lead time can be reduced to 2 weeks, what is thepercent reduction in the number of units maintained assafety stock for the same 99 percent stockout protection?d. If through appropriate sales promotions, the demand variabil-ity is reduced so that the standard deviation of weekly demandis…
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Jack Ltd is a market leader in the manufacture of apple juice. They operate a reorder level system of inventory management, and the following information is available for green apples: Average usage 800 per dayMinimum usage 450 per dayMaximum usage 1260 per dayLead time for replenishment 16-20 dayReorder quantity 19,500 apples a) Calculate the reorder level b) Calculate the maximum level of inventory c) Calculate the minimum (buffer) inventory level