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
Alternative to Total Overhead Variances There is an easier approach to overhead variances.  In this approach, the overheads are NOT sub-divided into their fixed and variable e

(a) Calculate the number of US imports with and without the tariff. (b) Calculate the dead weight loss of the tariff. (c) Calculate the loss in consumer surplus resulting fro

Determine Equivalent Units of the Product Let assume there are 4,000 units of a product in ending inventory out of that 60 percent are fully complete whereas the remaining are

DF is describing its consolidated financial declaration for the year ended 31 December 2009. DF has a numerous investments in other entities. Some of these investments are provided

A transport company is preparing its cost budgets for the coming year. It has been set both social objectives & cost targets by the government which it must achieve in order to rec

PrivateJets (PJ) is considering expanding its operations in the corporate travel market. Currently, PJ has a capital structure with a 25% debt-equity ratio. Their levered equity

diff between cost estimation and cost accounting

Time Rate System - Labour Remuneration It may be a high day rate or a flat time rate. Under flat time rate, all worker is paid for the time spend without considering the vol

Traditional budgeting  systems are  incremental  in nature and  tend  to  focus on  cost  centres.  Activity-based  budgeting  links  business  planning  to  the  budgeting  proces

Your organization (City Rehab) has been approached by an MCO looking for an exclusive arrangement for the rehabilitation of its hip replacement patients. The MCO is aggressively po