What is the cost minimizing solution for this product each year? Determine the re-order level, minimum inventory level and maximum inventory level for the product.
All Things Auto are retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the “DieHard” brand at a total cost of $168,200.
The following transactions, relating to the “DieHard” brand were completed during the quarter:
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October 5 |
Purchased 15 batteries at a cost of $17,020 each. |
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October 14 |
Sold 18 batteries at $22,250 per battery |
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October 22 |
Purchased 24 batteries at a cost of $18,175 each but the supplier gave a 4% quantity discount. |
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November 10 |
Sold 15 batteries to Orion Auto Ltd and 10 batteries to Brown’s Auto Detailing at a price of $23,990 each. |
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November 12 |
Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, All Things Auto paid $288 in cash on each battery to have the inventory shipped from the vendor’s warehouse to their location. |
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November 27 |
Sold 23 batteries which yielded total sales revenue of $576,840. (8 of these batteries were sold on account to Middletown Fuel & Auto Accessories a longstanding customer) |
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November 30 |
A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the “Duralast” brand. |
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December 2 |
In preparation for the festive season, All Things purchased 25 batteries at a total cost of $474,500. |
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December 15 |
5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. |
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December 30 |
Sold 22 batteries to two customers (Omega Traders & Middleton Auto Accessories) at a selling price of $26,950 each. |
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December 31 |
An actual count of inventory was carried out which revealed that there were 9 units of the “DieHard” brand in the warehouse. |
All purchases were on account and received on the dates stated.
- Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single
The maximum number of units sold for any one week is 150 and minimum sales 80 units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate.
- What is the cost minimizing solution for this product each year?
Determine the re-order level, minimum inventory level and maximum inventory level for the product.
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