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What is the EOQ for custom microchips

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Reference no: EM132906594

Problem - Andria Mullins, financial manager of Webster Electronics, has been asked by the firm's CEO, Fred Weygandt, to evaluate the company's inventory control techniques and to lead a discussion of the subject with the senior executives. Andria plans to use as an example one of Webster's "big ticket" items, a customized computer microchip that the firm uses in its laptop computers. Each chip costs Webster $200, and it must also pay its supplier a $1,000 setup fee on each order; the minimum order size is 250 units. Webster's annual usage forecast is 5,000 units, and the annual carrying cost of this item is estimated to be 20% of the average inventory value.

Andria plans to begin her session with the senior executives by reviewing some basic inventory concepts, after which she will apply the EOQ model to Webster's microchip inventory. As her assistant, you have been asked to help her by answering the following questions: What is the EOQ for custom microchips? What are total inventory costs if the EOQ is ordered?

Reference no: EM132906594

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What is the new reorder point : If a 200-unit safety stock is carried, what effect would this have on total inventory costs? What is the new reorder point
At what inventory level should webster reorder : The annual carrying cost of this item is estimated to be 20% of the average inventory value. At what inventory level should Webster reorder
How long must development last to change the? decision : Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
Summarize the financial weaknesses of the business : Discuss the major differences between the net income and the cash provided or used by operating activities, and explain the cause of the major difference
What is the EOQ for custom microchips : Each chip costs Webster $200, and it must also pay its supplier a $1,000 setup fee on each order; What is the EOQ for custom microchips
Most confident as way to invest in your future : Discuss one of the ways you feel most confident as a way to invest in your future. Explain your level of confidence.
Write the formula for the total costs of carrying inventory : Write out the formula for the total costs of carrying and ordering inventory, and then use the formula to derive the EOQ model
Why an adjustment might be necessary to reconcile net income : How that item impacted net income (or net loss) and why an adjustment might be necessary to reconcile net income to net cash flows from operations.
What assumptions underlie the EOQ model : As her assistant, you have been asked to help her by answering the following questions: What assumptions underlie the EOQ model

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