Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter III, Problem 4E
Andrew and Fulton, Inc., uses 780 tons of a chemical bonding agent each year. Monthly demand fluctuates between 50 and 80 tons. The lead time for each order is one month, and the economic order quantity is 130 tons.
Required:
- 1. Determine the safety stock appropriate for the chemical bonding agent.
- 2. At what order point, in terms of tons remaining in inventory, should Andrew and Fulton, Inc., order the bonding agent?
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Auto Zone purchases replacement brake fluid reservoirs directly from the manufacturer. Demand is roughly 1000 units per month over the year. Ordering costs are $25 per order and the reservoirs are $10.00 per unit. Annual holding costs are 20% of the value of the inventory. There are 311 working days per year and the lead time is 5 days. Address the following inventory management issues that need to be resolved. a) What is the EOQ for this component? b) What is the reorder point? c) What is the cycle time? d) What are the total annual holding and ordering costs associated with your recommended EOQ?
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.
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Economic Order Quantity
A microbrewery purchases malt for production. The supplier charges $35 for delivery (no matter how much is delivered) and $1.20 per gallon. The annual holding cost is 35% of the price per gallon. Usage is 250 gallons/week.
a) If the order quantity is 1000 gallons, what is the average inventory?
b) If the order quantity is 1500 gallons, how many orders are placed each year?
c) What is the EOQ quantity?
d) If the order quantity is 2500 gallons, what is the sum of the ordering and holding costs PER GALLON?
e) If orders are for the EOQ amount, what is the annual cost of the inventory system as a percentage of the annual purchase cost?
f)If orders must be in integer multiples of 1000 gallons, how much should be ordered to minimize ordering and holding costs PER GALLON?
g) A 3% purchase price discount is given if orders are for 8000 gallons or more. What would total annual costs (purchasing, ordering, and holding)
be using this discount?
Chapter III Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. III - Define and give examples of inventory ordering,...Ch. III - Prob. 2RQCh. III - Prob. 3ECh. III - Andrew and Fulton, Inc., uses 780 tons of a...Ch. III - Prob. 5ECh. III - Fiber Technology, Inc., manufactures glass fibers...Ch. III - Prob. 7ECh. III - Fiber Technology, Inc., manufactures glass fibers...
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