Develop a dollar-averaging budget for future purchases

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Reference no: EM13227055

A magnet manufacturer purchases copper on the open market at monthly intervals during the year. The best estimate of average price for the next year is $1.10 per lb. A fixed quantity of 25,000 lb per month is needed to meet the expected requirements for a 4-month planning horizon. Inventory carrying cost is 20% per year.

1) Develop a dollar-averaging budget for future purchases.

2) Suppose, at the time of the purchases, the actual prices per lb for the next 4 months turn out to be $1.32, $1.05, $1.10, and $0.95, respectively. If dollar averaging is used, what quantities should be purchased in each month? Is there any advantage over hand-to-mouth stategy?

 

Reference no: EM13227055

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