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.


(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
what are the accounting entries for interlocking and integrated systems of cost accounting?

Question P A RT A Borrico ltd manufacture a single product and they had currently introduced a system of budgeting and variance analysis. The subsequent information i

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

Juniper Ltd is a listed diversified company.  In preparing its financial statements in accordance with AASB 8, the chief operating officer has identified three operating segments:

Freshly Ground Investments have just made an investment of $550 000 in a new Toyota Hilux (with trailer) delivery vehicle. This vehicle will be used for deliveries and generate rev

Direct Material Cost Variances (DMCV) This variance is a general difference in the standard direct material cost and the actual direct material cost. This variance may be prese

prepare a trading and profit and loss accounts for the period using marginal costing and absorption costing

Introduction of Internal Rate of Return The traditional internal rate of return (IRR) method of project selection has been shown to be inferior to the NPV method due to vario

Sony manufactures battery for Iphone 6+. The average costs to manufacture batteries are $4 for 10,000 ad $2.67 for 30,000. Assuming the total cost function is linear, what will be

what is a cost sheet? what are its advantages?