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

Direct material yield variance (myv), Direct material yield variance (MYV) ...

Direct material yield variance (MYV) :   It has been described by the ICMA, London, as 'the variation between the standard yield of the actual material input and the actual yi

Ow much overhead will be assigned to each sailboat produced?, ShipShape Com...

ShipShape Company makes 2 different types of boats, commercial fishing and sail boats both for recreation and competition. The company consists of two different departments, design

Computation of overhead recovery rate, Compute the rate to be used in each ...

Compute the rate to be used in each department for applying overhead in both departments Budegeted Cost sheet   Amount in $

What was the amount of cash collected from customers, Q. What was the amoun...

Q. What was the amount of cash a firm collected from its customers, given the following fact set? The firm's balance sheets at the beginning and end of the year show gross accou

Calculate the payback and discounted payback period, Lapsol limited manufac...

Lapsol limited manufacture electrical appliances for the export market. The management of the company are considering investing in one of two possible capital expenditure projects.

Cost classification, #question.discuss the importance of cost classificatio...

#question.discuss the importance of cost classification to a business organisation?

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?

Financial statement issues that are unique to manufacturers, Financial Stat...

Financial Statement Issues that are Unique to Manufacturers Different from the retailers, manufacturers have three exclusive inventory category: 1) Raw Materials, 2)Work in

Relevant costs and decision-making, Relevant Costs and Decision-Making ...

Relevant Costs and Decision-Making The relevance of costs will depend upon the purpose for that they are being utilized. Relevance is related to future decisions. The relevanc

Considerations in variance investigation, Considerations in Variance Invest...

Considerations in Variance Investigation As already notice above, not all variances are investigated; this is only the material and meaningful as for cost control reasons vari

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