Economic order quantity, Cost Accounting

Assignment Help:

KIW Ltd currently orders Material B in batches of 2,500 kgs. Material B is consumed at a steady, known rate over the company's planning horizon of one year. The current usage is 40,000 kgs per annum. The costs of ordering Material B have been calculated at $300 per order. Each order is received and checked by an employee engaged in using B in production who generates a contribution of $90 per hour when not involved in materials checks. The stock check takes five hours. Holding costs amount to $15 per unit per annum.

The supplier of material B has very recently offered KIW a quantity discount of $0.24 per kg on the current price of $24, for all orders of 4,000 or more kgs of  Material B.

Required

(a)   Calculate the annual cost of the current ordering policy.                                      

(b)  Calculate the optimal order quantity of material B, ignoring the quantity discount;

(c)   Evaluate whether KIW should continue with the current ordering policy, order the economic order quantity or take advantage of the discount by ordering in batches of 4,000 kgs.                                                                                                                        

(d)  Critically discuss the limitations of the Economic Order Quantity model as a way of managing stock.                                                                                                    

e)   Specify the circumstances in which, a firm, although being able to determine the Economic Order Quantity, might choose a different re-order quantity.


Related Discussions:- Economic order quantity

Standard cost card, Standard Cost Card It is a card record of the Stan...

Standard Cost Card It is a card record of the Standard or expected costs in producing a specified output.  This gives the physical quantities of inputs and also their monetary

Product versus period costs, Product Versus Period Costs Another way to...

Product Versus Period Costs Another way to look at manufacturing costs is to think of them as attaching to a product. In other words, goods result from the manufacturing proces

Standard costing, Standard Costing A standard cost is a predetermined ...

Standard Costing A standard cost is a predetermined calculation of how much is supposed to be incurred under specific particular working conditions. It is not an average of pa

Prepare the journal entries to record declaration, Unrecaptured Sec. 1250 G...

Unrecaptured Sec. 1250 Gain and 1231. Mr. Briggs purchased an apartment complex on January 10, 2011, for $2 million with 10% of the price allocated to land. He sells the complex on

Determine cost, . Alice Company has received a special order from Jo...

. Alice Company has received a special order from John. John wishes to buy 100 units of Alice's product at a price of $48. The regular price is $65. The unit cost informati

Current funding availability, 1. The Initial Borrowings required are determ...

1. The Initial Borrowings required are determined by the amount required to start  the project less the Cash Invested by the Corporation.  The loans will always be principle & inte

Calculate the manufacturing cost per unit, the following activities relatin...

the following activities relating to indirect production costs: Activity Activity Costs Cost Drivers Machine Setup $180,000 1,500 setup hours Materials Handling $50,000 12,500 poun

average number of callers waiting, Radovilsky's Department Store in Haywoo...

Radovilsky's Department Store in Haywood, California, maintains a successful catalog sales department in which a clerk takes orders by telephone. If the clerk is occupied on one li

Determine expected net income and net cash flow, Elite Company is planning ...

Elite Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $300,000 cost with an expected four-year life a

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