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
COST ACCOUNTING
- 20-30 EOQ, uncertainty, safety stock, reorder point. FootLove Shoe Co. produces and sells excellent- quality walking shoes. After production, these shoes are distributed to 30 warehouses around the country. Each warehouse services approximately 120 stores in its region. FootLove uses an EOQ model to determine the number of pairs of shoes to order for each warehouse from the factory. Annual demand for Warehouse WH1 is approximately 180,000 pairs of shoes. The ordering cost is $200 per order. The annual carrying cost of a pair of shoes is $3.20 per pair. 1. Use the EOQ model to determine the optimal number of pairs of shoes per order. 2. Assume each month consists of approximately 4 weeks. If it takes 1 week to receive an order, at what point should warehouse WH1 reorder shoes? 3. Although WH1's average weekly demand is 3,750 pairs of shoes (180,000 + 12 months + 4 weeks), demand each week may vary with the following probability distribution: 3,250 pairs 3,500 pairs 0.15 3,750 pairs 0.55…arrow_forwardClothes, Inc., has an average annual demand for red, medium polo shirts of 25,000 units. The cost of placing an order is $80 and the cost of carrying one unit in inventory for one year is $25. Each shirt costs $35 and they sell for $70 each. Required: a. Use the economic-order-quantity model to determine the optimal order size. b. Determine the reorder point assuming a lead time of 10 days and a work year of 250 days.arrow_forwardMalburn Construction Ltd. Manufactures and distributes window frames. The company uses 600,000metal strips in producing the frames for the year. Each strip cost $15, the storage cost is 10% of the costprice and $180 is required to make an order.(i). Find the order size Malburn Construction needs to minimize its inventory costs. Calculate for the company:(ii). the number of orders placed per year. (iii).the length of the stock cycle in days. (iv). the annual ordering cost (v). the annual holding cost (vi). the total annual costarrow_forward
- Rho Merchandising supplies T-shirts to AK Mart. Currently, Rho orders T-shirts from various suppliers. One of the T-shirts is ordered in batches of 150 units. It has been estimated that an annual demand for T-shirts is 25,000 pieces. Furthermore, carrying cost is estimated to be P10 per T-shirt per year. Determine the ordering cost.arrow_forwardA. Timeless Products produces coat racks. The projected sales for the first quarter of the coming year and the beginning and ending inventory data are as follows: Sales 100,000 units; Unit price $15; Beginning inventory 8,000 units; Targeted ending inventory 12,000 units. The coat racks are molded and then painted. Each rack requires four pounds of metal, which cost $2.50 per pound. The beginning inventory of materials is 4,000 pounds. Young Products wants to have 6,000 pounds of metal in inventory at the end of the quarter. Each rack produced requires 30 minutes of direct labor time, which is billed at $9 per hour. 1. Compute for the budgeted materials purchases cost. 2.Compute for the budgeted direct labor costarrow_forwardWilliam Beville's computer training school, in Richmond, stocks workbooks with the following characteristics: 20,000 units/year $27/order Demand D Ordering cost S Holding cost H $3/unit/year a) The EOQ for the workbooks is (round your response to the nearest whole number).arrow_forward
- A flower shop uses 230 clay pots a month. The pots are purchased for $2 each. Annual holding cost is estimated to be 25 percent of purchase cost, and ordering cost is $18 per order. The manager has been using an order quantity of 230 flower pots. a. Calculate the EOQ. (Round the final answer to the nearest whole number.) EOQ pots b. Calculate the EOQ's total annual inventory control cost. (Round the final answer to 2 decimal places.) TC $ c. What additional annual inventory control cost is the shop incurring by using the current order quantity? (Round the final answer to 2 decimal places.) Additional cost $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_forwardJack’s Tracks sells 24,000 custom-designed GoKarts per year. These GoKarts are sold evenly throughout the year. The manufacturer charges Jack a $50 processing cost per order, and Jack incurs a carrying cost of $240 per year including storing each GoKart at a local warehouse. What is the economic order quantity for ordering materials?a. 100b. 1,000c. 2,000d. 10,000arrow_forward
- Assume that Medina Co. makes footballs and is trying to determine the quantity of leather it should order every time an order is placed. The relevant information is as follows:a. over the course of a year 12,000 square meters of leather will be needed,b. the cost of storing 1 square meter of leather is $3 andc. the cost of placing an order is $450. What is the Economic Order Quantity?arrow_forwardThe Chapeau Company is noted for an exceptionally impressive line of one-size fits-all men's hats. Chapeau has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2018: Activity Cost Cost driver Marketing $106,000 $1,540,000 of sales Customer service 70,000 10,000 customer Order execution 2,000 500 orders Warehousing 15,000 152 product lines Required: 1. What kind of a costing system is your company using? Justify your answer. 2. Your management argues that the current costing does not add any benefits to the company. Do you agree or disagree with his statement? Present convincing arguments. 3. How do you think the company picked up the above cost drivers? Where does each belong in the hierarchy? Are these cost drivers appropriate? Do they have any negative implications? 4. All that you need to care about during product costing is output unit level costs. Do you agree or disagree with this statement?…arrow_forwardBigdog Company distributes pet products. Its ABC system has five activities: Activity Area Cost Driver Rate in 2020 1. Order processing $50 per order 2. Line-item ordering $5 per line item 3. Store deliveries $40 per store delivery 4. Carton deliveries $6 per carton 5. Shelf-stocking $19 per stocking hour Rufus McBrain, the controller of Bigdog Company, wants to use this ABC system to examine customer profitability. He focuses on two of his customers to find out the insights he can gain from using this system. Data for these two customers in April 2020 are as follows: Pet Store Annerley RSPCA store Springwood Total orders 13 7 Average line items per order 11 19 Total store deliveries 5 7 Average cartons shipped per store delivery 21 18 Average hours of shelf stocking per store delivery 0.5 0.75 Average revenue per delivery $2,600 $1,900 Average cost of goods sold per delivery…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning