Annual expected total relevant cost, Managerial Accounting

Assignment Help:

A purchased product, sold in a retail store, has a normally distributed daily demand, with a mean of 8 units/day and a variance of 4 (units)2. Its supply lead time is 6 days and the store is open 365 days a year. Currently, this item's inventory replenishment policy is based on a periodic review system with a review period of 30 days (dictated by the supplier) and an order-up-to level, i.e. maximum inventory position, of 250 units. The purchase cost of this product is $16 per unit, its ordering cost is $50 per order and the store's inventory carrying cost rate is $0.25/$/year. It is also estimated that the cost of not having sufficient stock to satisfy this item's demand routinely off the shelf is $40 per stockout incident.

(a) What is this item's cycle service level under the current ordering policy? Also, compute the average number of days between consecutive stockouts and the annual expected total relevant cost for this product.

(b) Based on a reassessment of current policy, management has specified that it is willing to tolerate an average of no more than one stockout per year for this item. How would you modify the current ordering policy to satisfy this requirement and what would be the resulting annual expected total relevant cost?


Related Discussions:- Annual expected total relevant cost

What is production cost, What is Production cost It begins with the sup...

What is Production cost It begins with the supplying of materials, labour and services and ends with the primary packing of the product. Therefore, it includes the cost of d

Return on investment-residual income, Return on Investment and Residual Inc...

Return on Investment and Residual Income This is a traditional approach to performance measurement given by: ROI =     Income          Invested Capital               (m

Marginal costing, marginal costing decision making assignment questions

marginal costing decision making assignment questions

Strengths and weakness of net book value and paybac, Strengths and weaknes...

Strengths and weakness of net book value and pay back method

Cost estimation and management of overhead cost, How might a company use re...

How might a company use regression results to manage overhead costs?

Preparation of comparative balance sheet, Problem From the following ba...

Problem From the following balance sheets of Dramas Ltd., compute the trend percentages using 31st December 2005 as the base year. Assets & Liabilities

Define inputted cost, Determine the Inputted cost It is hypothetical c...

Determine the Inputted cost It is hypothetical cost required to be considered to make costs comparable. It is the owner of the factory charges rent of the factory to the cost

Evaluation of the regression model, EVALUATION OF THE REGRESSION MODEL ...

EVALUATION OF THE REGRESSION MODEL The regression equation calculated above was based on the assumption that cost varied with the units produced. However, a number of different

Illustrate the marginal cost pricing, Marginal cost or incremental cost pri...

Marginal cost or incremental cost pricing method: Here the company may work on the premise of recovering its marginal cost and getting a contribution towards its overheads. Thi

The incredible game theorist, The Incredible game theorist Mr. Nash's w...

The Incredible game theorist Mr. Nash's work needed refining. First, it applies to games played only once, or in which players move simultaneously. But virtually all interestin

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd