Jim Overstreet, inventory control manager for Itex, receives wheel bearings from Wheel-Rite, a small producer of metal parts. Unfortunately, Wheel-Rite can produce only 500 wheel bearings per day. Itex receives 10,000 wheel bearings from Wheel-Rite each year. Since Itex operates 200 working days each year, its average daily demand for wheel bearings is 50. The ordering cost for Itex is $40 per order, and the carrying cost is 60 cents per wheel bearing per year. How many wheel bearings should Itex order from Wheel-Rite at one time? Wheel-Rite has agreed to ship the maximum number of wheel bearings that it produces each day to Itex when an order has been received.

Jim Overstreet, inventory control manager for Itex, receives wheel bearings from Wheel-Rite, a small producer of metal parts. Unfortunately, Wheel-Rite can produce only 500 wheel bearings per day. Itex receives 10,000 wheel bearings from Wheel-Rite each year. Since Itex operates 200 working days each year, its average daily demand for wheel bearings is 50. The ordering cost for Itex is $40 per order, and the carrying cost is 60 cents per wheel bearing per year. How many wheel bearings should Itex order from Wheel-Rite at one time? Wheel-Rite has agreed to ship the maximum number of wheel bearings that it produces each day to Itex when an order has been received.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 6E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the annual ordering cost. 2. Compute the annual carrying cost. 3. Compute the cost of Ottiss current inventory policy. Is this the minimum cost? Why or why not?
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
The Laurel Creek Lawn Shop sells Fastgro Fertilizer. The annual demand for the fertilizer is 270,000 pounds. The cost to order the fertilizer from the Fastgro Company is $105 per order. The annual carrying cost is $0.25 per pound. The store operates with shortages, and the annual shortage cost is $0.70 per pound. Compute the optimal order size, minimum total annual inventory cost, and maximum shortage level.
An auto parts supplier sells Hardy-brand batteries to car dealers and auto mechanics. The annual demand is approximately 1,200 batteries. The supplier pays $28 for each battery and estimates that the annual holding cost is 30 percent of the battery’s value. It costs approximately $20 to place an order (managerial and clerical costs). The supplier currently orders 100 batteries per month. What is the economic order quantity?
Malburn Construction Ltd. Manufactures and distributes window frames. The company uses 600,000metal strips in producing the frames for the year. Each strip cost $15, the storage cost is 10% of the costprice and $180 is required to make an order.(i). Find the order size Malburn Construction needs to minimize its inventory costs. Calculate for the company:(ii). the number of orders placed per year. (iii).the length of the stock cycle in days. (iv). the annual ordering cost (v). the annual holding cost (vi). the total annual cost
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (A) Economic Order Quantity1. What is the annual demand for the boxes of candles?2. How much is the carrying cost of one box of candles for one year?3. What is the economic order quantity for the boxes of candles? Round UP.4. How many orders will be made per year on average if the economic order quantity was followed? Round off totwo decimal places.5. How much…
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (B) Economic Order Quantity4. What is the annual demand for the boxes of candles?5. How much is the carrying cost of one box of candles for one year?6. What is the economic order quantity for the boxes of candles? Round UP.7. How many orders will be made per year on average if the economic order quantity was followed? Round off totwo decimal places.8. How…
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (D) Cost-Benefit Analysis: If ABC maintains its current inventory policy for the year,1. How much would the forecasted carrying cost be?2. How much would the forecasted ordering cost be?3. How much would the total inventory-related costs be?4. How much would the entity save it followed the reorder point and economic order quantity models?5. How would you…
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (A) Reorder Point1. What should be the reorder point in boxes?2. How much would the normal lead time usage be?3. How much should ABC keep as safety stock?
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. 1. How much would the ordering cost for the year be on average if the economic order quantity was followed?2. What would the average number of boxes be if the economic order quantity was used (excluding safety stock)?Round off to two decimal places.3. How much would the carrying cost for the year if the economic order quantity was followed (excluding…
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450.If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. 1. What would the average number of boxes be if the safety stock from Part A was kept and the EOQ from Part B was followed? 2. How much would the carrying cost for the year be based on item 1? 3. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was followed (including safety stock)? 4. How much would…
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (B) Economic Order Quantity 1-6. Computed for the inventory-related cost if the entity purchased 500 boxes more and less than the EOQ. 7. Explain what would happen to the ordering cost, carrying cost and total inventory-related costs if the entity doesnot follow the economic order quantity based on the previous numbers