Calculate the optimal re-order quantity, Cost Accounting

Mr. Marley is a wholesaler who buys and sells a wide range of products, one of which is the Laker. Mr. Marley sells 24,000 units of the Laker each year at a unit price $20. Sales of the Laker normally follow an even pattern throughout the year but to protect himself against possible deviations Mr. Marley keeps a minimum stock of 1,000 units. Further supplies of the Laker are ordered whenever the stock falls to this minimum level and the time lag between ordering and delivery is small enough to be ignored.

At present, Mr Marley buys all his supplies of Lakers from May Ltd and usually purchases in batches of 5,000 units. His most recent invoice from May Ltd was as follows:

 

$

Basic price: 5,000 Lakers @ $15 per unit

75,000

Delivery charge: Transport at $0.50 per unit

2,500

Fixed shipment charge per order

1,000

TOTAL

78,500

In addition, Mr. Marley estimates that each order he places costs him $500, comprising administrative costs and the cost of sample checks. This cost does not vary with the size of the order.

Mr. Marley stores Lakers in a warehouse which he rents on a long lease for $5 per square foot per annum. Warehouse space available exceeds current requirements and, as the lease cannot be cancelled, spare capacity is sublet on annual contracts at$4 per square foot per annum. Each unit of Laker in stock requires two square feet of space. Mr. Marley estimates that other holding costs amount to $10 per Laker per annum.

Mr. Marley has recently learnt that another supplier of Lakers , Richardson Ltd, is willing, unlike May Ltd, to offer discounts on large orders. Richardson Ltd sells Lakers at the following prices:

Order Size

Price per unit ($)

1 - 2,999

15.25

3,000 - 4,999

14.50

5,000 and over

14.25

In other respects (i.e. delivery charges and the time between ordering and delivery) Richardson Ltd's terms are identical to those of May Ltd. You are required to:

a. Calculate the optimal re-order quantity for Lakers and the associated annual profit Mr. Marley can expect from their purchase and sale, assuming that he continues to buy from May Ltd.

b. Prepare calculation to show whether Mr. Marley should buy Lakers from Richardson Ltd rather than from May Ltd and, if so, in what batch sizes.

c.  Explain the limitations of the methods of analysis you have used.

Posted Date: 2/26/2013 7:14:57 AM | Location : United States







Related Discussions:- Calculate the optimal re-order quantity, Assignment Help, Ask Question on Calculate the optimal re-order quantity, Get Answer, Expert's Help, Calculate the optimal re-order quantity Discussions

Write discussion on Calculate the optimal re-order quantity
Your posts are moderated
Related Questions
Q. What kinds of benefits have communities realized due to FCA? Communities have understood the following benefits by using FCA: • Rates or tipping fees are set right and fa

Factors affect Decision Making These decisions need consideration of factors as like A. The level of market possible to be available in future B. The strategy that compe

Quicksilver Compnay has set the follwoing standards for one unit of product: Direct material Quantity: 6.2 lbs per unit Price per lb: $11 per lb Direct Labor Quantity: 6 hrs

manufacturing costs will not include a. indirect material used b. sales salaries expense c. indirect labor costs d. depreciation of factory equipment

You have been asked to prepare a cash budget for Whitborrow plc for the next three months, October, November and December. The Managers are concerned that they may not have suffici

The  basic  principles  of  standard  costing  and  variance  analysis  may  be  adapted  to  the needs of  relatively  new  methods  of  accounting  such  as  activity-based  cost

The Houston Chamber Orchestra presents a series of concerts throughout the year. Budgeted fixed costs total $300,000 for the concert season; variable costs are expected to average

The sunshine tomato soup shippers produce tomato soup at three west coast canneries in Bakersfield, phoenix, and Eugene. The soup is shipped to four regional warehouses. Due to hig

Holmes Electronics' Canadian Branch will help introduce into Canada the just developed new electronic device which, when mounted on an automobile, will tell the driver how many mil

Find the following values for a single cash flow: a. The future value of $500 invested at 8 percent for 1  year b. The future value of $500 invested at 8 percent for 5 years