Annual expected total relevant cost, Managerial Accounting

A purchased product, sold in a retail store, has a normally distributed daily demand, with a mean of 8 units/day and a variance of 4 (units)2. Its supply lead time is 6 days and the store is open 365 days a year. Currently, this item's inventory replenishment policy is based on a periodic review system with a review period of 30 days (dictated by the supplier) and an order-up-to level, i.e. maximum inventory position, of 250 units. The purchase cost of this product is $16 per unit, its ordering cost is $50 per order and the store's inventory carrying cost rate is $0.25/$/year. It is also estimated that the cost of not having sufficient stock to satisfy this item's demand routinely off the shelf is $40 per stockout incident.

(a) What is this item's cycle service level under the current ordering policy? Also, compute the average number of days between consecutive stockouts and the annual expected total relevant cost for this product.

(b) Based on a reassessment of current policy, management has specified that it is willing to tolerate an average of no more than one stockout per year for this item. How would you modify the current ordering policy to satisfy this requirement and what would be the resulting annual expected total relevant cost?

Posted Date: 2/25/2013 12:11:24 AM | Location : United States







Related Discussions:- Annual expected total relevant cost, Assignment Help, Ask Question on Annual expected total relevant cost, Get Answer, Expert's Help, Annual expected total relevant cost Discussions

Write discussion on Annual expected total relevant cost
Your posts are moderated
Related Questions

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


Explain the Features of budgetary control From the definition the following features of budgets control emerge: 1) Establishment of budgets: budgets are prepared for each

i want to get the answer for exercises 2.1 and 2.2 on strategic and tactical decisions

Let a quarry's cost function of producing Q tons of stone per hour be given by TC = Q 3 - 10Q 2 + 40Q + 25, so that marginal cost function is MC= 3Q 2 - 20Q + 40. (i) Find th

Financial Perspective How do we produce value for our shareholders? This perspective covers traditional measures e.g. growth, liability, shareholder value. But these are set on

Describe the Nature of standard costing The system of standard costs (standard costing) is a management technique of using predetermined costs (standard costs) for evaluating p

According to the Philadelphia Inquirer, in 2004 the city of Philadelphia planned to spend $14 million to convert the Convention Center into an appropriate venue for the Republican

Question 1: (a) Discuss the main features and problems which Mauritius has to face as a small island developing country. (b) What are the factors which have led to the f