Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 12QP
Summary Introduction
To determine: The economic order quantity (EOQ).
Introduction:
Economic order quantity refers to a model or tool designed for reducing the total costs (carrying costs and ordering costs) of the inventory.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Q3) suppose that the demand for a product is 2000 per year, and the items are
withdrawn uniformly. The order cost is 150$ and the inventory holding cost is 0.5$
per item per month. Assuming shortages are not allowed, find:
1- The economic order quantity.
2- The number of ordering during the year (order frequency).
3- The interval between two orders.
4- The annual cost.
Given:
Peter Piper has projected sales of 72,000 pipes this year, ordering cost of P6 per order, and carrying costs of P2.40 per pipe.
With the given data, can you give me the solution on how to get:
-What is the economic ordering quantity?
-Total inventory cost at EOQ
-How many orders will be placed during the year?-What will the average inventory be?
Thank you in advance.
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 60,500 units per year, an ordering cost of $12 per order, and carrying costs of $1.20 per unit.a. What is the economic ordering quantity?___________Units
b. How many orders will be placed during the year?
__________Orders
c. What will the average inventory be?
____________Units
d. What is the total cost of ordering and carrying inventory?
$____________
Chapter 20 Solutions
Fundamentals of Corporate Finance
Ch. 20.1 - Prob. 20.1ACQCh. 20.1 - Prob. 20.1BCQCh. 20.2 - What considerations enter into the determination...Ch. 20.2 - Explain what terms of 3/45, net 90 mean. What is...Ch. 20.3 - Prob. 20.3ACQCh. 20.3 - Explain how to estimate the NPV of a credit policy...Ch. 20.4 - What are the carrying costs of granting credit?Ch. 20.4 - What are the opportunity costs of not granting...Ch. 20.4 - Prob. 20.4CCQCh. 20.5 - Prob. 20.5ACQ
Ch. 20.5 - Prob. 20.5BCQCh. 20.6 - Prob. 20.6ACQCh. 20.6 - What is an aging schedule?Ch. 20.7 - What are the different types of inventory?Ch. 20.7 - What are three things to remember when examining...Ch. 20.7 - Prob. 20.7CCQCh. 20.8 - Prob. 20.8ACQCh. 20.8 - Which cost component of the EOQ model does JIT...Ch. 20.A - Prob. 1ACQCh. 20.A - Prob. 1BCQCh. 20.A - Evaluating Credit Policy [LO2] Bismark Co. is in...Ch. 20.A - Credit Policy Evaluation [LO2] The Johnson Company...Ch. 20.A - Prob. 3QPCh. 20.A - Prob. 4QPCh. 20.A - Prob. 5QPCh. 20 - What is the difference between the accounts...Ch. 20 - Prob. 20.2CTFCh. 20 - Prob. 20.7CTFCh. 20 - Prob. 1CRCTCh. 20 - Prob. 2CRCTCh. 20 - Prob. 3CRCTCh. 20 - Five Cs of Credit [LO1] What are the five Cs of...Ch. 20 - Prob. 5CRCTCh. 20 - Prob. 6CRCTCh. 20 - Prob. 7CRCTCh. 20 - Prob. 8CRCTCh. 20 - Prob. 9CRCTCh. 20 - Prob. 10CRCTCh. 20 - Prob. 1QPCh. 20 - Size of Accounts Receivable [LO1] The Red Zeppelin...Ch. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Terms of Sale [LO1] A firm offers terms of 1/10,...Ch. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Evaluating Credit Policy [LO2] Air Spares is a...Ch. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 19QPCh. 20 - Prob. 20QPCh. 20 - Prob. 21QPCh. 20 - Prob. 22QPCh. 20 - Credit Policy at Howlett Industries Sterling...Ch. 20 - Prob. 2M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- QUESTION 5 A). What are inventories? Why are they important to manufacturing companies? B). What is the difference between FIFO and LIFO? C). Given the following data, calculate a level production plan, quarterly ending inventory, and average quarterly inventory. If inventory carrying costs are $6 per unit per quarter, what is the annual carrying cost? Opening and ending inventory are zero. Quarter 1 Quarter 2| Quarter 3 Quarter 4 Totals $ Forecast Demand 5000 7000 8500 9500 Production Ending Inventory Average Inventory Inventory Cost If the company always carries 100 units of safety stock, what is the annual cost of carrying it? D) Perform an ABC analysis on the following set of products. Annual Item Demand Unit Cost A211 800 $9 B390 100 $90 C003 450 $6 D100 400 $100 E707 85 $2,000 F660 250 $320 G473 500 $75 H921 100 $75arrow_forwardAn inventory item has a demand of 10,000 units per month. The cost of each unit is $6, and the interest on tied-up money is 10%. The average ordering cost is $250 per order. a) What is the EOQ? units (round your response to the nearest integer). b) What is the optimal number of orders per year? to the nearest integer) c) What is the optimal number of days between any two orders? your response to the nearest integer) d) What is the annual holding cost? $ nearest integer) orders (round your response e) What is the total annual cost of the inventory system? $ to the nearest integer) days (round per year (round your response to the (round your responsearrow_forward[no.1] Let d be the daily demand, L be the lead time, and Q be the order quantity. When the ROP is greater than the maximum-on hand inventory, a. a new order would have to placed when the on-hand inventory reaches ROP-Q while there was one other order in-transit b. a neworder would have to be placed when the on-hand inventory reaches d xL. c. a new order would have to be placed when the stock is depleted. d. a new order would have to be placed when the on-and inventory falls to d.arrow_forward
- Pedee Companys inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio? a. Increase the sales price. b. Increase manufacturing costs. c. Reduce the cost of goods sold. d. Reduce average inventory. e. All of these.arrow_forwardArcadia Windings is concerned about its stocks of copper cable. The demand for this is 8,000 meters a week, with a cost of £ 4 a meter. Each order costs £ 350 for administration and £ 550 for delivery, and has a lead time of 8 weeks. Holding costs are about 25 per cent of value held a year, and any shortages would disrupt production and give very high costs. What is the best inventory policy for the cable? How does this compare with the current policy of placing a regular order every week?arrow_forwardHammond Supplies expects sales of 235,880 units per year with carrying costs of $2.18 per unit and ordering cost of $3.1 per order. Assuming the level of inventory is stable, what is the optimal average number of units in inventory? Round to the nearest whole number.arrow_forward
- 1, What should be the reorder point in boxes?2. How much would the normal lead time usage be? 3. How much should ABC keep as safety stock? 4. What is the annual demand for the boxes of candles?5. How much is the carrying cost of one box of candles for one year?6. What is the economic order quantity for the boxes of candles? Round UP.7. How many orders will be made per year on average if the economic order quantity was followed? Round off totwo decimal places.8. How much would the ordering cost for the year be on average if the economic order quantity was followed?9. What would the average number of boxes be if the economic order quantity was used (excluding safety stock)?Round off to two decimal places.10. How much would the carrying cost for the year if the economic order quantity was followed (excluding safetystock)?11. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity wasfollowed (excluding safety stock)?12 to 17. Computed…arrow_forward2. A local retailer anticipates an annual demand 12000 units of a product. The retailer allows shortages for that product, and these shortages are backordered at a rate of OMR per unit backordered. The cost of ordering is 200 OMR whereas, the annual holding cost is 1 OMR per unit. The retailer operates 300 days per year. What is the optimal maximum inventory level ? Round-up to the nearest integer a. 1789 b. None is correct c. 1960 d. 1898 e. 1987arrow_forwardA company stocks an item that is consumed at the rate of 35 units each day. Every time an order is placed for new supply, $ 105 must be paid. A unit inventory held in stock will cost $ 0.15 d) What is the total cost if the order quantity is 205 more than EOQ? e) What is the optimum number of orders (rounded to the closest integer) that the company has to place each year? Assume that the company has a standing policy of not allowing shortages in demand.arrow_forward
- Dream Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Howe anticipates sales of 126,000 units per year, an ordering cost of P4 per order, and carrying costs of P1.008 per unit. The following year, the company. learns it can reduce ordering costs to P1 per order but that carrying costs will stay the same at P1.008 per unit. What is the total cost of inventory to be expected?arrow_forward5. Assume Wyteboard Corp. markers uses 1,440,000 gallons ofink each year. Assume Palmer will order the ink at a rate of P2 per gallon plus a fixed cost of P100 per order. At cost, the firm's carrying cost is 20% of the inventory value. What is Wyteboard's minimum costs of ordering and holding inventory?arrow_forward10.7. A company manufactures and sells a seasonal product. Based on the sales forecast that follows, calculate a level production plan, quarterly ending inventories, and average quarterly inventories. Assume that the average quarterly inventory is the average of the starting and ending inventory for the quarter. If inventory carrying costs are $3 per unit per quarter, what is the annual cost of carrying this anticipation inventory? Opening and ending inventories are zero. ANSWER. Annual inventory costs = $6000 Sales Production Ending Inventory Average Inventory Inventory Cost Quarter 1 1000 Quarter 2 2000 Quarter 3 3000 Quarter 4 2000 Totalsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Inventory management; Author: The Finance Storyteller;https://www.youtube.com/watch?v=DZhHSR4_9B4;License: Standard Youtube License