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

What is the carrying value of the asset, Dolphin Company uses special strap...

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years w

Chrome-it, I would like to know the solution on this one.

I would like to know the solution on this one.

What percent of the cost of property, In Lowe's Companies, Inc. 2012 Annual...

In Lowe's Companies, Inc. 2012 Annual Report (Form 10-K) 1. Evaluate Lowe's investment in property, plant and equipment. Determine the following amounts as reported by Lowe's on it

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 the net present value of proposed project, A foreign company plan...

A foreign company plans to clear several dozen acres of ecologically valuable mangrove swamp in Vietnam for the creation of a shrimp aquaculture facility.  This decision will creat

Is there barely one way to conduct fca, Q. Is there barely one way to condu...

Q. Is there barely one way to conduct fca? Ans. No. It is significant for each area to put the FCA process in perception with its waste management goals. Every community w

Tax depreciation affect the cash flows statement?, What type of activity co...

What type of activity could a company engage in to improve their cash flows in their Cash Flows Statement? Is this ethical? Could borrowing money make the cash from operations be

LIFO, I need an example for Lilo,Fifo, and weighted average method for a ye...

I need an example for Lilo,Fifo, and weighted average method for a year. Jan.begining inventory, purchases in Feb., April, July, October, and November. Can you help me with this?

Calculate the discounted cash flow and net present value, King Airlines ...

King Airlines King Airlines is one of many low-cost airlines in Europe. The managers want to expand the business and have an opportunity to purchase a second-hand plane to op

what are the flexible budget formula, Question: Timothy Ltd uses a fle...

Question: Timothy Ltd uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labo

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