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
XYZ Pvt Ltd is a private company incorporated in Australia, and manufactures handbags. The opening balance of XYZ Pvt Ltd's franking account on 1 July 2010 was $nil. During the 201

Calculate Cost or Equivalent Units The given work in progress account concerns to the blending department of a company, a soft-drinks company for the month of January in 1999

Find a journal article online about just-in-time inventory systems. In the subject line of your post, include the title of the article that you read. Post a link to that article wi

Change in Fixed Cost In graph yx shows the existing profit curve for a company along with a fixed cost OY break=-even point B, margin of safety M; profit SX whereas sales volu

Example of High - Low Method of Cost Estimation Based on the performance, such you have been provided along with the given information regarding ABC Ltd for the year ended on

fixed expenses are incurred equally in the two half year periods,calculate

STANDARD COSTING STANDARD COSTING is a method, which uses standards for costs and revenues for the idea of control by variance analysis. It can be used either through operation

Material Cost Control Therefore Materials form an important cost of output units and that should be controlled.  Material Control is more than merely recording the accounting

Vorticella can first be seen by the naked eye, b.ut to study it place a prepared slide under the microscope. Focus it under low power, and observe it. You can see a large number of

Smith Corp. has determined that its contribution margin, (P - MC)/P, is 40%. A recent market research study found the following relationship between adverting outlays and sales rev