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 8E
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.
The lead time required to receive an order of XL-20 is one month.
Required:
- 1. Assuming stable usage of XL-20 each month, determine the reorder point for XL-20.
- 2. Draw a graph showing the usage, lead time, and reorder point for XL-20.
- 3. Suppose that monthly usage of XL-20 fluctuates between 300 and 500 canisters, although annual demand remains constant at 4,800 canisters. What level of safety stock should the materials and parts manager keep on hand for XL-20? What is the new reorder point for the chemical?
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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…
Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of.
The controller at Kinnear collected the following information on purchases for the past year:
Tappan Hill
Total purchases (tons) 6,000 10,000
Plastic discarded 120 600
The purchasing manager has just received bids on an order for 290 tons of plastic from both Tappan and Hill. Tappan bid $1,813 and Hill bid $1,786 per ton.
Required:
Assume that the average quality, measured by the amounts discarded…
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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