EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475950
Author: Datar
Publisher: PEARSON CO
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Textbook Question
Chapter 20, Problem 20.25E
Sensitivity of EOQ to changes in relevant ordering and carrying costs, cost of prediction error. Alpha Company’s annual demand for its only product. XT-590, is 10,000 units. Alpha is currently analyzing possible combinations of relevant carrying cost per unit per year and relevant ordering cost per purchase order, depending on the company’s choice of supplier and average levels of inventory. This table presents three possible combinations of carrying and ordering costs.
Relevant Carrying Cost per Unit per Year | Relevant Ordering Cost per Purchase Order |
$10 | $400 |
$20 | $200 |
$40 | $100 |
- 1. For each of the relevant ordering and carrying-cost alternatives, determine (a) EOQ and (b) annual relevant total costs.
Required
- 2. How does your answer to requirement 1 give insight into the impact of changes in relevant ordering and carrying costs on EOQ and annual relevant total costs? Explain briefly.
- 3. Suppose the relevant carrying cost per unit per year was $20 and the relevant ordering cost per purchase order was $200. Suppose further that Alpha calculates EOQ after incorrectly estimating relevant carrying cost per unit per year to be $10 and relevant ordering cost per purchase order to be $400. Calculate the actual annual relevant total costs of Alpha’s EOQ decision. Compare this cost to the annual relevant total costs that Alpha would have incurred if it had correctly estimated the relevant carrying cost per unit per year of $20 and the relevant ordering cost per purchase order of $200 that you have already calculated in requirement 1. Calculate and comment on the cost of the prediction error.
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EBK HORNGREN'S COST ACCOUNTING
Ch. 20 - Why do better decisions regarding the purchasing...Ch. 20 - Name six cost categories that are important in...Ch. 20 - What assumptions are made when using the simplest...Ch. 20 - Give examples of costs included in annual carrying...Ch. 20 - Give three examples of opportunity costs that...Ch. 20 - What are the steps in computing the cost of a...Ch. 20 - Why might goal-congruence issues arise when...Ch. 20 - JIT purchasing has many benefits but also some...Ch. 20 - What are three factors causing reductions in the...Ch. 20 - You should always choose the supplier who offers...
Ch. 20 - Prob. 20.11QCh. 20 - What are the main features of JIT production, and...Ch. 20 - Distinguish inventory-costing systems using...Ch. 20 - Describe three different versions of backflush...Ch. 20 - Discuss the differences between lean accounting...Ch. 20 - The order size associated with the...Ch. 20 - Prob. 20.17MCQCh. 20 - Prob. 20.18MCQCh. 20 - Lyle Co. has only one product line. For that line,...Ch. 20 - Just-in-time inventory assumes all of the...Ch. 20 - Economic order quantity for retailer. Wonder Line...Ch. 20 - Economic order quantity, effect of parameter...Ch. 20 - EOQ for a retailer. The Fabric World sells fabrics...Ch. 20 - EOQ for manufacturer. Sk8 Company produces...Ch. 20 - Sensitivity of EOQ to changes in relevant ordering...Ch. 20 - JIT production, relevant benefits, relevant costs....Ch. 20 - Backflush costing and JIT production. Grand...Ch. 20 - Backflush costing, two trigger points, materials...Ch. 20 - Backflush costing, two trigger points, completion...Ch. 20 - Prob. 20.30PCh. 20 - Prob. 20.31PCh. 20 - Prob. 20.32PCh. 20 - Prob. 20.33PCh. 20 - JIT purchasing, relevant benefits, relevant costs....Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Backflush costing and JIT production. The Acton...Ch. 20 - Backflush, two trigger points, materials purchase...Ch. 20 - Backflush, two trigger points, completion of...Ch. 20 - Lean accounting. Reliable Security Devices (RSD)...Ch. 20 - JIT production, relevant benefits, relevant costs,...
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