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 probability that a randomly selected bike, A bicycle plant runs...

A bicycle plant runs two assembly lines, A and B. 96.9% of line A's products pass instruction, while only 93.8% of line B's products pass inspection. 70% of the factory's bikes com

Cash flows statement, What type of activity could a company engage in to im...

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

Calculate the equivalent annual cost, A plant is considering the replacemen...

A plant is considering the replacement of a piece of equipment in its materials handling system with a new piece. If the company's cost of capital is 10%. Should the present asset

Shrinkage - production process, Shrinkage - Production Process This re...

Shrinkage - Production Process This refers to a disappearance or loss of material inputs utilized throughout the production process. It happens mainly via the evaporation. Thi

Exercise I do not understand, what would your answer be to the following pr...

what would your answer be to the following problem, please show detailed calculations: The XYZ Company manufacturers Part 123 for use in its production line. The manufacturering co

Cost and budget, #questionFrame-it Ltd is a manufacturer of metal picture f...

#questionFrame-it Ltd is a manufacturer of metal picture frames. The firm''s two product lines are designate S (small frames: 12 x18 cm) and L (large frames: 20 x 25 cm). The prima

What are total fixed cost, Corporation has determined the contribution marg...

Corporation has determined the contribution margin ratio is 35% and the income tax rate is 40%. Required: A) Assume break-even volume in dollars is $1,500,000. What are total fixed

Example of over and under absorption of production overhead, Example of Ove...

Example of Over and under absorption of production overhead costs By employing data from diagram assume such the production overhead absorption rate was computed where an acti

Target profit and break even analysis, Lindon Company is the exclusive dist...

Lindon Company is the exclusive distributor for an automotive product that sells for $43 per unit and has a CM ratio of 35%. The company''s fixed expenses are $421,400 per year. Th

Estimate the selling price and profit, Slash and Burn is a monopolist that ...

Slash and Burn is a monopolist that can sell its output at these prices and with these total costs:                    Output             Price        Total Cost

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