1.
Economic Order Quantity (EOQ):
Economic order quantity is the quantity of order that is purchased from supplier at a time, the EOQ aim is to reduce the carrying and ordering cost of inventory. EOQ is also referred as the optimum level of lot size.
Safety Stock:
Safety stock is that type of stock which a company always store to meet the uncertainties seen in the future. The company always maintains this type of stock so that the demand of customer will be fulfilled and company will retain the customer.
To calculate: The optimum number of pair of shoes per order using EOQ model.
2.
To compute: The reorder point
3.
To compute: The safety stock also explains the effect of safety stock on reorder point and on reorder quantity.
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Chapter 20 Solutions
Horngren's Cost Accounting, Student Value Edition (16th Edition)
- 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?arrow_forwardPhillips Corporation is a major manufacturer of food processors. It purchases motors from Viking Corporation. Annual demand is 52,000 motors per year or 1,000 motors per week. The ordering cost is $360 per order. The annual carrying cost is $6.50 per motor. It currently takes 2 weeks to supply an order to the assembly plant. Q. At what point should managers reorder the motors, assuming that both demand and purchase-order lead time are known with certainty?arrow_forwardThe following operating information reports the results of Blue Spruce Company’s production and sale of 12,500 air-conditioned motorcycle helmets last year. Based on early market forecasts, Blue Spruce expects the same results this year. Sales $2,121,000 Variable manufacturing expenses 814,000 Fixed manufacturing expenses 276,000 Variable selling and administrative expenses 104,000 Fixed selling and administrative expenses 227,000 The American Motorcycle Club has offered to purchase 1,500 helmets at a price of $100 each. Blue Spruce has sufficient idle capacity to fill the order, which would not affect the company’s cost structure or regular sales.If Blue Spruce accepts this order, by how much will its income increase or decrease? Operating income will decreaseincrease by $ .arrow_forward
- Samantha Ross is the procurement manager for the headquarters of a large financial company chain with a central inventory operation. Ross's quick moving inventory item has a demand of 7000 units per year. Each unit cost $120, and the inventory holding cost is $15 per unit per year. The average ordering cost is $31 per order. It takes about 6 days for an order to arrive. This corporate operation and there are 250 working days. What is the WOW What is the average of the EOQ used What is the optimal number of orders per year What is the optimal number of days in between any two orders What is the annual cost of ordering and holding inventory Including the cost of 7000 units. What is the total annual inventory cost What is the annual cost What is the ROParrow_forwardMachine Operator, manufacturer of shelving keeps stock of a wide range of components. The following data, you have established that: The cost to hold one unit for one year is $1.60. The cost of placing an order is $70.00. Lead Time: The supplier takes from one to two weeks to deliver goods ordered. Maximum 2 Weeks Minimum 1 Week The annual demand is 50,000 units Maximum usage5,000 usage Minimum usage 2,000 units Required: (a) On the basis of the above information, calculate for component B: (i) The minimum stock level (ii) The reorder level (iii) The EOQ (iv) The maximum stock levelarrow_forwardMy Kitchen Delights (MKD) is considering two newsuppliers for the jars used in the production process. Th e qualityat both suppliers is equal. Assume that the annual holding costis 30 percent of the unit price. Monthly demand averages 20,000jars. Ordering cost with these two suppliers is $30 per order. Th eprice lists for the suppliers are as follows: (a) Determine the optimal order quantity when usingSupplier A.(b) Determine the optimal order quantity when usingSupplier B.(c) Given MKD’s lack of space, which supplier do yourecommend be used? Justify your answer.arrow_forward
- Required information [The following information applies to the questions displayed below.]Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 per hour. Iguana has the following inventory policies: Ending finished goods inventory should be 40 percent of next month’s sales. Ending direct materials inventory should be 30 percent of next month’s production. Expected unit sales (frames) for the upcoming months follow: March 295 April 290 May 340 June 440 July 415 August 465 Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $9,000 ($750 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $800 per month plus $0.50 per unit sold. Iguana,…arrow_forwardThe following operating information reports the results of Ayayai Company’s production and sale of 12,500 air-conditioned motorcycle helmets last year. Based on early market forecasts, Ayayai expects the same results this year. Sales $2,026,000 Variable manufacturing expenses 862,000 Fixed manufacturing expenses 279,000 Variable selling and administrative expenses 112,000 Fixed selling and administrative expenses 229,000 The American Motorcycle Club has offered to purchase 1,600 helmets at a price of $100 each. Ayayai has sufficient idle capacity to fill the order, which would not affect the company’s cost structure or regular sales.If Ayayai accepts this order, by how much will its income increase or decrease? Operating income will select an option decreaseincrease by $enter a dollar amount .arrow_forwardBeauty Supplies Company manufactures and sells several ranges of artwork. The average revenue and cost of sales are as follows: Selling price per unit $30.00 Variable costs per unit: Direct materials $7.00 Direct manufacturing labor $2.40 Manufacturing overhead $0.60 Selling costs $3.00 Annual fixed costs $108,000 a) Calculate the contribution margin per unit. Calculate the number of units Beauty Supplies Company must sell each year to break even. Calculate the number of units Beauty Supplies Company must sell to yield a profit of $160,000. Managers may use Sensitivity analysis in their accounting system. What is sensitivity analysis? How is Sensitivity analysis useful to managers?arrow_forward
- A manufacturer occasionally needs a component in the manufacture of certain products. Its cost per startup is $125 and the cost of holding a component in stock is $1.65 per week. The gross needs for the next few weeks are as follows: Week 1 2 3 4 5 6 7 8 Raw needs 0 40 20 100 20 0 20 80 Knowing that the manufacturing time is one week and that there is no stock available, determine the planned receptions and launches as well as the total costs if the manufacturer decides to use: The economical quantity method to order The Fixed Interval Method The subdivision piece period will upvote thanks!!arrow_forwardPhillips Corporation is a major manufacturer of food processors. It purchases motors from Viking Corporation. Annual demand is 52,000 motors per year or 1,000 motors per week. The ordering cost is $360 per order. The annual carrying cost is $6.50 per motor. It currently takes 2 weeks to supply an order to the assembly plant. Q. What is the optimal number of motors that Phillips’s managers should order according to the EOQ model?arrow_forwardhe Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data: Product DemandNext year(units) SellingPriceper Unit DirectMaterials DirectLabor Debbie 62,000 $ 20.50 $ 5.50 $ 3.60 Trish 54,000 $ 7.00 $ 2.30 $ 1.32 Sarah 47,000 $ 34.00 $ 8.24 $ 7.20 Mike 56,000 $ 15.00 $ 3.20 $ 4.80 Sewing kit 337,000 $ 9.20 $ 4.40 $ 0.72 The following additional information is available: The company’s plant has a capacity of 84,160 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products. The direct labor rate of $12 per hour is expected to remain unchanged during the coming year. Fixed manufacturing costs total $640,000 per year. Variable overhead costs are $3 per direct labor-hour.…arrow_forward
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