The case of a fixed discount-discount structures, Managerial Accounting

Assignment Help:

The case of a fixed discount

When evaluating inventory decisions when a fixed discount rate exists, the appropriate procedure is to compare the total costs of the EOQ with the total costs when discounts are taken. The option giving lower costs is then chosen.

Note: The Unit (variable) cost (i.e. Purchase Price) behaves in the following manner.

C = Co        if    0 ≤ Q ≤ Qb
Co (1 - P)    if    Q ≥ Qb


Where:

Co = basic unit cost without a discount
P = Discount rate allowed.
Qb = Break-point (Quantity) - where discounts become operational.

In order to determine the optimal ordering quantity, it is necessary to include the costs of the inventory with the carrying ordering costs.

Total costs of Inventory = Total Purchase cost + Total order cost + Total carrying cost

TC = DCo + (Q*/2) H + Do/Q2                  If 0 ≤ Q ≤ Qb   
TC = DC. (1 - P) + (Q/2) H + Do/Q            If Q ≥ Qb   

                               
Note:

The second equation i.e. with discounts will give a lower TC than first equation for the same. The decision whether to go for the discount lies on a trade-off between extra carrying costs vs. a decrease in acquisition costs.


Related Discussions:- The case of a fixed discount-discount structures

Simple queues, Simple Queues A simple queue has the following character...

Simple Queues A simple queue has the following characteristics; 1) There is a simple service channel 2) There are ‘discrete’ customers e.g. customers in a bank, or aircra

Xs strategy, X's Strategy X will like to divide his play between his ro...

X's Strategy X will like to divide his play between his rows in such a way that his expected winnings or losses when Y plays the first column will be equal to his expected winn

Compute the value of share of a company, Compute the value of share of a co...

Compute the value of share of a company? A company paid dividend amounting to Rs. 0.75 each share during the last year. The company is supposed to pay Rs. 2.00 per share throug

Management, Discuss the different roles played by the qualitative and quant...

Discuss the different roles played by the qualitative and quantitative approaches to managerial decision making

Determine the tyoes of cost centre, Determine the tyoes of Cost centre ...

Determine the tyoes of Cost centre Cost centre can be of two kinds: 1. Impersonal cost centre: consisting of a location or item of equipment (or group of these) like machi

What are the advantages of contributionmargin analysis, What are the Advant...

What are the Advantages of contributionmargin analysis the concept of contribution is variable aid to management in making managerial decisions . a few benefits resulting from

Explain the ratio analysis according to kosher, Explain the Ratio analysis ...

Explain the Ratio analysis according to kosher A ratio is the relation of the amount a to another b expressed as the ratio of a to b; a: b (a is to b) or a as simple fraction i

Prepare an overhead analysis sheet, QUESTION 1: P A RT A You are...

QUESTION 1: P A RT A You are the Cost Accountant of an industrial concern and have been assigned the duty of preparing a cost accounting system. Initially it has been de

Explain the stock turnover ratio, Stock turnover ratio  Meaning: thi...

Stock turnover ratio  Meaning: this ratio establishes a relation ship between costs of goods sold and average inventory. Objective: the objective of component of this r

prepare an income statement, Adm2341 manufactures and sells four different...

Adm2341 manufactures and sells four different products. The following data are extracted from the most recent financial statements:   Products

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