The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat annually. 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 P5 per bushel. The company maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. REQUIRED: 1. What is the EOQ? 2. At what inventory level should an order be placed to prevent having to draw on the safety stock? 3. What are the total inventory costs, including the costs of carrying the safety stock?

The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat annually. 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 P5 per bushel. The company maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. REQUIRED: 1. What is the EOQ? 2. At what inventory level should an order be placed to prevent having to draw on the safety stock? 3. What are the total inventory costs, including the costs of carrying the safety stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 20P

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