Reference no: EM133122690
QUESTION ONE
Halwings Group Limited wishes to achieve excellent stock management so as to achieve a marvelous profit this year. Its management estimates the demand for its products to be 1000 units per annum, with a purchase price of shs.10 per unit, a holding cost of shs.0.75 per unit and ordering cot of shs.15 per order. The supplier of the stocks has presented Halwings Group Limited with the following range of prices of the stocks:
|
Quantity |
Price Per |
Order size (in units) |
Discount |
Unit (Shs) |
|
(%) |
|
0 - 99 |
0 |
10 |
100 - 199 |
1 |
9.9 |
200 - 399 |
2 |
9.8 |
400 - 599 |
4 |
9.6 |
600 - 799 |
5 |
9.5 |
800 - 899 |
5 |
9.5 |
900 - 999 |
5.5 |
9.45 |
Due to its storage capacity, the company can only purchase an amount of up to 600 units. Currently, the company is purchasing at optimum stock quantity to enable it achieve its objectives. The management is considering whether to shift from the current stock purchase policy to purchase the maximum stocks.
Required;
a) Calculate the current EOQ in units.
b) Determine the total costs of stocks that arise due to the EOQ purchased (include the discount opportunity costs).
c) Advise the company whether it should change its policy.
QUESTION TWO
Corin Company manufactures a product called Corfic. Pertinent cost and revenue data relating to the manufacture of this product are given below:
|
Shs
|
Selling price per unit
|
66
|
Variable production cost per unit
|
44
|
Variable selling cost per unit
|
4
|
Fixed production cost (total)
|
Shs.200,000
|
Fixed selling and administrative cost (total)
|
Shs.99,000
|
Required:
a) Calculate the break-even sales level in shillings;
b) Suppose the company desires to make a profit of shs.195,000, what should be the output in units?
c) A new machine, which is more efficient, is installed. This machine increases the fixed production cost by 20% but reduces the variable production cost per unit by 30%. What is the new break-even point in sales revenue?
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