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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Chapter III, Problem 7E
To determine
Prepare a graphical analysis of the economic order quantity decision for XL-20.
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Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's
materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals
used in the production process. The chemical is purchased in 10-pound canisters for $95 each. The firm
uses 4,800 canisters per year. The controller estimates that it costs $150 to place and receive a typical
order of XL-20. The annual cost of storing XL-20 is $4 per canister.
Required:
1.
Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the follow-
ing order quantities: 400, 600, and 800 canisters.
2. What are the weaknesses in the tabular approach?
The F Inc.’s materials manager is considering the installation of a just-in-time (JIT) inventory system for L-20, one of the chemicals used in the production process. Currently, the chemical is purchased for $30 each pound. The firm uses 4,800 pounds L-20 per year. The controller estimates that it costs $150 to place and receive a typical order of L-20. The annual cost of storing L-20 is $1 per pound. F Inc.’s manufacturing engineering team identifies the following effects of adopting a JIT inventory system:
1) F Inc. will order 100 pounds L-20 each time.
2) The cost of placing an order for L-20 will be reduced to $20.
3) Suppliers would add $4 to the price per pound for frequent deliveries.
4) Currently there is a defect-assessment cost of $120,000 per year. This cost is expected a reduction of 20% under the JIT system. F Inc. requires a 10% annual rate of return on investment
Required:
From a financial perspective, determine whether it is in the best interest of F to…
Micron Manufacturing produces electronic equipment. This year, it produced 7,500 oscilloscopes at a manufacturing cost of $300 each. These oscilloscopes were damaged in the warehouse during storage and, while usable, cannot be sold at their regular selling price of $500 each. Management has investigated the matter and has identified three alternatives for these oscilloscopes. 1. They can be sold as is to a wholesaler for $75 each. 2. They can be disassembled at a cost of $400,000 and the parts sold to a recycler for $130 each. 3. They can be reworked and turned into good units. The cost of reworking the units will be $3,200,000, after which the units can be sold at their regular price of $500 each. Required Which alternative should management pursue? Show analysis for each alternative.
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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