Case of variable quantity-discounts structures, Managerial Accounting

Assignment Help:

The case of variable quantity discounts

In practice, suppliers may offer different discounts for different quantities purchased. For illustration:

   Segment       Quantity Purchased           Unit Price
    1                       0 — 500                     Shs 100
    2                     501 — 1,000                 Shs  90
    3                    1001 — 1,500                 Shs  80
    4                    over — 1,500                 Shs  70

The best approach to the solution in this case is to apply the price-breaks theorem. This works as shown below:

(1) For each segment an EOQ is calculated. There are two probable requests:

  • The EOQ is within the quantity segment (i.e. valid). In this case, the EOQ is used as the minimum cost quantity for that segment.
  • The EOQ is outside the quantity segment (i.e. not valid). In this case the minimum cost quantity will be the quantity within the segment closest to the EOQ as calculated.

 

(2) Select the quantity that leads to the lowest total inventory costs (i.e. Purchase, Ordering & Carrying).


Related Discussions:- Case of variable quantity-discounts structures

Standard costing .., the applicability of standard costing in modern manufa...

the applicability of standard costing in modern manufacturing environments in volatile environments

Incremental analysis, What nonfinancial factors should management consider ...

What nonfinancial factors should management consider in making its decision on whether to accept or reject a special order?

Determine the benefit of product life cycle costing, Benefit of product lif...

Benefit of product life cycle costing The benefits of product life cycle costing are summarized as follows: 1) The product life cycle costing results in earlier actions to g

Describe the graphic method of break even analysis, Graphic method of break...

Graphic method of break even analysis or break even chart The break even point can also be computed graphically. A break even chart is a graphical representation of marginal co

Accounting Ratios, Explain TWO limitations of using accounting ratios to as...

Explain TWO limitations of using accounting ratios to assess the performance of a firm and suggest how each limitation may be improved

Transfer pricing, find full-cost& variable cost using transfer pricing meth...

find full-cost& variable cost using transfer pricing method

Medical office accounting final project, John Doe, MD A Business Simulation...

John Doe, MD A Business Simulation This simulation covers the transactions completed by John Doe, MD, a medical service business, which began on July 1 of the current year. Dr. D

Explain the types of standards, Explain the Types of standards The foll...

Explain the Types of standards The following is the brief description of various types of standards: 1) Basic standards: these are the standards which are assumed to remai

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