1. What is the economic order quantity for standard 5-inch winches if they are ordered from (a) Supplier A, and (b) Supplier B? Round your answers up to the next whole unit, because Narragansett cannot order a fraction of a winch.
EOQ = square root of ( 2 x R x A) V x W
R = annual demand is 1500 units A = ordering cost is $1,000 for Supplier A and $500 for Supplier B V = cost per unit is $300 W = carrying cost percentage is 23%
Supplier A: EOQ = Square root of (2 x 1500 x $1,000) = S.R. of 3,000,000 = 209 ($300 x 23%) 69
Supplier B: EOQ = Square root of (2 x 1500 x $500) =
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Compute this figure for Supplier A and Supplier B.
Days till shutdown = Reorder Points / Daily Usage
Supplier A: 117 / (1500/360) = 29 Days
Supplier B: 234 / (1500/360) = 57 Days
6. The cost of carrying inventories has been calculated using the current cost of bank loans (see Table 2). Do you think this is the appropriate rate? Explain, and in your answer consider both WACC and tax effects.
Yes, In considering the WACC since inventory ties up money that could be used elsewhere, capital costs are one of the biggest factors in determine carrying cost, and in considering the interest expense it can be written off for tax purposes. Inventory is also constant throughout the year because usage is uniform throughout the year. The rate given is a long term bank rate which is best for constant production. The usage is uniform because production is constant instead of seasonal. If the production is seasonal, short term bank rates are more attractive.
7. Narragansett’s production is relatively constant throughout the year, but if its sales production were highly seasonal, could the EOQ model still be used? If so, would modifications be required? Explain.
Yes, the EOQ model can still be used. But, you would have to adjust for seasonal variations in inventory. ie ' You would find the EOQ
Identify the strengths and weaknesses of Fontaine's and Gaudin's negotiating strategy in their deliberations with Reliant Chemical Company. How effectively did Fontaine and Gaudin approach the negotiation?
"The Boat" by Alistair MacLeod is the story told from the perspective of university teacher looking back on his life. The narrator relates the first memories of his life until his father's death. The story focuses on the conflicting relation between the mother and the father, and their different perspectives on how their children should lead their lives. MacLeod uses features of setting to present the tension between tradition and freedom.
PROBLEM 5-1. Variable and Full Costing: Sales Constant but Production Fluctuates [LO 1, 2, 3, 5] Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows: 2011 Units sold Units produced Fixed production costs Variable production costs per unit Selling price per unit 15,000 15,000 $750,000 $ 150 $ 250 2012 15,000 20,000 $750,000 $ 150 $ 250 $220,000 2013 15,000 10,000 $750,000 $ 150 $ 250 $220,000 Total 45,000 45,000
If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000.
Loan and Interest Payment to Bank based on remainder needed to cover costs and ensure an adequate supply of cash on hand which was calculated from the Average Percentage of Cash for $240,000 worth of inventory from Study F.
1. What is the nature of the market segment(s) served by AtlanticRider.com? To which VALS group(s) would the typical AtlanticRider.com member be assigned? Based on the services offered on its site, how well does AtlanticRider.com serve its market segment(s)?
b. Use your answer to part A to determine the total annual indirect cost assigned to:
To be not recoverable the carrying amount has to be larger than the sum of the expected undiscounted cash flows and disposition of the asset. As of January 1, 2015 The Wilma has a carrying cost of $4,875,000 (cost of $6,500,000 minus 10 year depreciation of 1,625,000). The lease for 2015-2024 will generate an undiscounted cash flow of $2,400,000. With the over abundance of commercial warehouse space The Wilma only has a 50% chance of renewing the lease for another 10 years (2025-2034). Therefore the total undiscounted cash flow would be $3,600,000. The carrying cost of The Wilma is larger than the undiscounted cash flow calculated, making the carrying amount of The Wilma not recoverable. The impairment loss will be the amount that the carrying amount exceeds the fair value by. The discounted fair value of The Wilma is $2,543,176.80; therefore the impairment loss to be recognized is $2,331,823.20 (carrying amount of $4,875,000 minus the fair value of $2,543,176.80) (FASB, 2015, ASC para.
“The Company’s inventories are reported at the lower of cost or market. Inventory costs include material, conversion costs, freight and duties and are determined by the first-in, first-out method. The Company reserves for slow-moving and aged inventory based on historical experience, current product demand and expected future demand. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact Coach’s evaluation of its slow-moving and aged inventory and additional
We must calculate the average stock on hand for each item (safety stock + ½ order lot size), and must calculate the cost per item (unit cost plus freight). For the first item—gas ranges—a safety stock of 40 units is maintained, and ½ the order lot size is 100 units, for a total inventory in stock of 140 units. Unit cost ($100) plus freight ($20) equals $120. Multiplying average inventory (140) times $120 equals $16,800. Doing all the items on table gives a total of $96,175. Because this is a 10% sample, the total parts inventory would be worth $961,750. Inventory carrying costs on this, at 20% per year, would be
The cost of inventories generally will be the purchase price for deferred credit terms unless the contract states the interest payable for deferred terms.
Analysis of the Taylor Woodrow Company Taylor Woodrow Company is involved in construction and properties development. Its primary business is house building. It builds home throughout the United Kingdom through the Bryant Band. And it also builds homes internationally through countries such as USA, Spain, Gibraltar and Canada through its Monarch branch. Taylor Woodrow construction business is focused on activities such as ‘private finance initiative facilities Management and specialist engineering consultancy.
Assumption 1: The excess capacity stated allows for 3000 of each unit to be produced the costs of each are as follows.
Capital cost is very important as it constitutes the largest cost of inventory carrying cost. Hence, a firm needs to adopt the capital budgeting process to determine whether it should proceed with the investment in inventory or not. Therefore, the hurdle rate should be used to determine whether the value generated from the investment has exceeded a minimum rate. This applies to all the new investment in the firm. That is, there is an assurance of no reduction of earnings per capital. In addition, Capital costs explain all the external funding, including equity and debt financing, that is invested in inventory hence the name opportunity loss or interest. This means that the Weighted Average Cost of Capital will be used in making a policy decision regarding the investment of
Harris[7] developed the concept of an EBQ or economic order quantity (EOQ) for purchasing. Since then, researchers have developed several models of increasing complexity to take factors such as production rate, cost of stockout and effect of price reduction[4,6,8] into account. Saunders[9] indicated that the main weakness in the calculation of EBQ centred on the costs used in the formula. The basic assumptions that the costs are affected by the lot-size selected and that demand and lead time are constant, may not be realistic in many situations. The EBQ formula applies to individual items and indicates a desired optimum condition for each, based on definitive assumptions regarding costs. They do not indicate the total results in either inventory or the operating conditions that can be expected. Neither do they give any consideration to changes from the present situation. Ptak[10] pointed out that the EBQ formula is widely used in practice because of the relative simplicity of the model and the small number of variables considered. To overcome the need for accurate costing data, Ploss and Wight[6] developed LIMIT (lot size inventory management interpolation technique) for handling EBQ in aggregate and dealing with the constraint problems of the