PROBLEM 2The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat ammally. The wheat mustbe purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500,are P5,000 per order. Anmual carrying costs are 2 percent of the purchase price of PS per bushel. Themaintains a safety stock of 200,000 bushels. The delivery time is 6 weeks.companyREQUIRED1.2. What are the total inventory costs, including the costs of carying the safety stock?3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat inquantities of 650,000 bushels. Would it be to Strawberry Bread's advantage to order under this altemative?At what inventory level should an order be placed to prevent having to draw on the safety stock?

1. Reorder Inventory Level = Safety Stock + Demand stock to cover delivery time i.e. 6 weeks…

PROBLEM 2 The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat amually. The wheat must be purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500, are P5,000 per order. Annual carrying costs are 2 percent of the purchase price of PS maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. per bushel. The company REQUIRED: 1. At what inventory level should an order be placed to prevent having to draw on the safety stock? 2. What are the total inventory costs, including the costs of carying the safety stock? 3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat in quantities of 650,000 bushels. Would it be to Strawbery Bread's advantage to order under this altemative?

PROBLEM 2 The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat amually. The wheat must be purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500, are P5,000 per order. Annual carrying costs are 2 percent of the purchase price of PS maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. per bushel. The company REQUIRED: 1. At what inventory level should an order be placed to prevent having to draw on the safety stock? 2. What are the total inventory costs, including the costs of carying the safety stock? 3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat in quantities of 650,000 bushels. Would it be to Strawbery Bread's advantage to order under this altemative?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter15: Managing Short-term Assets

Section: Chapter Questions

Problem 16PROB

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