Economic order quantity, Cost Accounting

KIW Ltd currently orders Material B in batches of 2,500 kgs. Material B is consumed at a steady, known rate over the company's planning horizon of one year. The current usage is 40,000 kgs per annum. The costs of ordering Material B have been calculated at $300 per order. Each order is received and checked by an employee engaged in using B in production who generates a contribution of $90 per hour when not involved in materials checks. The stock check takes five hours. Holding costs amount to $15 per unit per annum.

The supplier of material B has very recently offered KIW a quantity discount of $0.24 per kg on the current price of $24, for all orders of 4,000 or more kgs of  Material B.

Required

(a)   Calculate the annual cost of the current ordering policy.                                      

(b)  Calculate the optimal order quantity of material B, ignoring the quantity discount;

(c)   Evaluate whether KIW should continue with the current ordering policy, order the economic order quantity or take advantage of the discount by ordering in batches of 4,000 kgs.                                                                                                                        

(d)  Critically discuss the limitations of the Economic Order Quantity model as a way of managing stock.                                                                                                    

e)   Specify the circumstances in which, a firm, although being able to determine the Economic Order Quantity, might choose a different re-order quantity.

Posted Date: 2/26/2013 7:23:39 AM | Location : United States







Related Discussions:- Economic order quantity, Assignment Help, Ask Question on Economic order quantity, Get Answer, Expert's Help, Economic order quantity Discussions

Write discussion on Economic order quantity
Your posts are moderated
Related Questions

XYZ Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will have coupo

1) Define Elasticity.  If you have a product where elasticity is less than one, what does that mean?  Is it good, bad for the firm? 2) Why will firms not shut down as soon as th

The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) m

how marginal cost of a product is determined?

Labor Transactions (i) Wages Paid in cash (ii) Wages incurred like a) Direct labor or else b) Indirect labor  In the Financial Books  In

The Federal Reserve adjusts short term interest rates based upon their perceptions of the needs in the economy.  Please describe the ways the Federal Reserve can influence interest

When implementing ABC, once a company has identified business activities and their costs, the company will probably: A) determine a simplified single cost allocation rate B)

LaNora White received her accounting degree in 1992. Since graduating, she has obtained significant experience in a variety of job settings. Her skills include auditing, income and

Example of Economic Order Quantity The EOQ model supposes : - Annual demand is recognized - Hold costs are constant and recognized - Ordering costs are recognized a