BUSINESS COLLEGE

For a manufacturing company that you are consulting for, managers are unsure about making inventory decisions associated with a key engine component. The annual demand is estimated to be 15,000 units and is assumed to be constant throughout the year. Each unit costs $80. The companys accounting department estimates that its opportunity cost for holding this item in stock for one year is 18% of the unit value. Each order placed with the supplier costs $220. The companys policy is to place a fixed order for Q units whenever the inventory reaches a predetermined reorder point that provides sufficient stock to meet demand until the suppliers order can be shipped and received. As a consultant, your task is to develop and implement a decision model to help them arrive at the best decision. As a guide, consider the following:

1. Define the data, uncontrollable inputs, and decision variables that influence total inventory cost.

2. Develop mathematical functions that compute the annual ordering cost and annual holding cost based on average inventory held throughout the year in order to arrive at a model for total cost.

3. Implement your model on a spreadsheet.

4. Use data tables to find an approximate order quantity that results in the smallest total cost.

5. Use Solver to verify your result.

6. Conduct what-if analyses to study the sensitivity of total cost to changes in the model parameters.

7. Explain your results and analysis in a memo to the vice president of operations.

Answers

Answer 1

Answer:

Answer:

Annual Demand = 15,000 units

Cost of each unit = $ 80

Holding Cost = 18% of unit value

Ordering Cost = $ 220 per order

For implementation of a good decision model regarding inventory after considering all type costs assisted to it such as: holding cost and ordering cost, concept of EOQ is applied.

EOQ = ((2 * Annual Demand* Ordering Cost) / (Holding Cost))1/2

= ((2 * 15000 * 220) / (80*18%))1/2

= 677 units

Hence this quantity states that this manufacturing company should reorder the quantity when it has 677 units.

2)Mathematically, costs related to inventory are computed in the following manner:

1) Annual ordering cost = Ordering cost per order * Number of orders in a year

= 220 * 15000/677 = 220 * 22 = 4840

2) Holding cost = Holding cost per unit * Average inventory throughout the year

Average inventory throughout the year = 15,000/12 = 1250 units

Holding cost = 18%* 1250 = 225

Total cost = 4840 + 225 = 5065

Related Questions

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Rosa and Nick need to decide which one of them will take time off from work to complete the rather urgent task of digging postholes for their new fence. Rosa is pretty good with a post auger; she can dig the holes in 1 hour. Nick is somewhat slow; it takes him 6 hours to dig the holes. Rosa earns $120 per hour as a psychiatrist, while Nick earns $15 per hour as a cobbler. Keeping in mind that either Rosa or Nick must take time off from work to dig the holes, who has the lowest opportunity cost of completing the task?
Several transactions for Trolley, Inc. are presented below. The company adjusts its books only at year-end.a. On August 1, the company rented some land from another company for $2,660 for a three-year time period. Trolley charged an expense account on August 1.b. On February 1, Trolley received $8,000 for a four-year technical service contract. Trolley is performing the services evenly over the four-year period. The company credited a liability account, Unearned Service Revenue, on February 1.c. On May 1, Trolley loaned $3,400 to another company on a 12%, one-year note.d. The weekly (five-day) payroll of Trolley amounts to $2,500. All employees are paid at the close of business each Friday. December 31 falls on a Thursday.Required:Prepare the adjusting entries for December 31.
A relatively flat demand curve indicates that the demand for a product is very sensitive to a change in price.TrueFalse
A company purchases a remote building site for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?a. The cost of the building will not include the repainting and recarpeting costs.b. The cost of the building will include the cost of replacing the roof.c. The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.d. The wiring is part of the computer costs, not the building cost.

The risk premium for exposure to aluminum commodity prices is 4%, and the firm has a beta relative to aluminum commodity prices of .6. The risk premium for exposureto GDP changes is 6%, and the firm has a beta relative to GDP of 1.2. If the risk-free rate is 4%, what is the expected return on this stock?

A.
14.4 percent

B.
10.0 percent

C.
13.6 percent

D.
11.5 percent Please show work

Answers

Answer:

C. 13.6 percent

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × risk-free rate of return + Beta × market risk premium

= 4% + 0.6 × 4% + 1.2 × 6%

= 4% + 2.4% + 7.2%

= 13.6%

The (Market rate of return - Risk-free rate of return) is also known as market risk premium

A survey asks 1200 workers, "Has the economy forced you to reduce the amount of vacation you plan to take this year?" Forty-six percent of those surveyed say they are reducing the amount of vacation. Twenty workers participating in the survey are randomly selected. The random variable represents the number of workers who are reducing the amount of vacation. Decide whether the experiment is a binomial experiment. If it is, identify a success, specify the values of n, p, and q, and list the possible values of the random variable x. Is the experiment a binomial experiment?

Answers

Answer:

It is a binomial experiment.

A success is a worker saying that the economy forced him to reduce the amount of vacation you plan to take this year.

$n = 20$

$p = 0.46$

$q = 0.54$

The random variable x can assume any value from 0 to 20, inclusive.

Explanation:

For the question that is asked to the workers( "Has the economy forced you to reduce the amount of vacation you plan to take this year?") there are two possible answers, only two possible outcomes. So yes, it is a binomial experiment.

If it is, identify a success, specify the values of n, p, and q, and list the possible values of the random variable x.

A success is a worker saying that the economy forced him to reduce the amount of vacation you plan to take this year.

n is the amount of workers that participate in the survey. So $n = 20$

p is the decimal probability of a success. Forty-six percent of those surveyed say they are reducing the amount of vacation. So $p = 0.46$

q is the decimal probability of a failure. The sum of the probability of a failure and a success must be decimal 1. So

$p + q = 1$

$0.46 + q = 1$

$q = 0.54$

The values of the random variable x are the number of workers that say they are reducing their amount of vacation. 20 workers are surveyed, so the random variable x can assume any value from 0 to 20, inclusive.

Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are) ______________. A. Both recoverability test and fair value test
B. Recoverability test but not fair value test
C. Not recoverability test but fair value test
D. Neither recoverability test nor fair value test

Answers

Answer: The correct answer is "C. Not recoverability test but fair value test".

Explanation: The impairment test to be used is Not recoverability test but fair value test. To determine whether intangibles of indefinite life have deteriorated and must present another value in their balance sheet, they must implement the fair value test.

For a present sum of $840,000, determine the annual worth (in then-current dollars) in years 1 through 6 if the market interest rate is 10% per year and the inflation rate is 3% per year. The annual worth is:________ $ .

Answers

Answer:

The annual worth is:________

$667,380

Explanation:

Present value of investment = $840,000

Number of years = 6

Market interest rate = 10%

Inflation rate = 3%

Real interest rate = 7%

PV Annuity factor = 4.767

Total FV of annuity = $840,000 * 4.767 = $4,004,280

Annual worth = $4,004,280/6 - $667,380

The annual worth of the investment of $840,000 will be $667,380 based on the market-adjusted interest rate of 7% (10 - 3).

If the beginning raw materials inventory balance is $50 and the ending raw materials inventory balance is $500 and the amount of raw materials placed into production $400.....what are the Net Purchases for the period

Answers

The net purchase for the period will be $850.

Amount of raw material placed into production) = Opening inventory + Net purchase - Ending inventory

$400 = $50 + Net purchase - $400

Net purchase = $850

In conclusion, the net purchase for the period will be $850.

Answers

Answer:

Statement II and III

Explanation:

For Statement I

We know that in a perfect competitive market the profit is maximum where either Marginal Revenue = Marginal Cost, or the Price + Marginal Cost is the point defining the profit.

Therefore, firm having to exercise maximum power in market will produce more up till Marginal Revenue > Marginal Cost.

Therefore, statement I is false.

Statement II

For the time till when the marginal revenue is more than the marginal cost, more and more goods shall be produced to increase the quantum of profit.

as this will assure no losses up to the time where MR>MC.

Thus, statement II is true.

Statement III

If there is no cost of production then entire amount received for a good will be profit, accordingly till the time the marginal revenue does not fall to 0 the goods shall be supplied to consumers, as the entire amount received will be profit with no cost associated.

Thus, statement III is also True.

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