Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Textbook Question
thumb_up100%
Chapter 20, Problem 7E
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $30. The cost of holding one unit of inventory for one year is $15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year.
Required:
- 1. Compute the economic order quantity.
- 2. Compute the ordering, carrying, and total costs for the EOQ.
- 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Malburn Construction Ltd. Manufactures and distributes window frames. The company uses 600,000metal strips in producing the frames for the year. Each strip cost $15, the storage cost is 10% of the costprice and $180 is required to make an order.(i). Find the order size Malburn Construction needs to minimize its inventory costs.
Calculate for the company:(ii). the number of orders placed per year.
(iii).the length of the stock cycle in days.
(iv). the annual ordering cost
(v). the annual holding cost
(vi). the total annual cost
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $30. The cost of holding one unit of inventory for one year is $15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year.
REQUIRED:
1. Compute the annual ordering cost.
2. Compute the annual carrying cost.
3. Compute the cost of Ottis’s current inventory policy. Is this the minimum cost? Why or why not?
Wesley Utility Company uses 2,500 units per year
which it stores at $0.50 per unit per annum. The cost
to place an order is $100.
a) Calculate:
i. The economic order quantity (EOQ)
b) If the company decides to make the items on its
own machine with a potential capacity of 5,000 units
per year,
calculate:
i. The economic order quantity (EOQ)
ii. The annual ordering cost
iii. The annual carrying cost
Chapter 20 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 20 - What are ordering costs? What are setup costs?...Ch. 20 - Explain why, in the traditional view of inventory,...Ch. 20 - Discuss the traditional reasons for carrying...Ch. 20 - Prob. 4DQCh. 20 - Explain how safety stock is used to deal with...Ch. 20 - Prob. 6DQCh. 20 - What approach does JIT take to minimize total...Ch. 20 - One reason for inventory is to prevent shutdowns....Ch. 20 - Prob. 9DQCh. 20 - Explain how long-term contractual relationships...
Ch. 20 - What is a constraint? An internal constraint? An...Ch. 20 - Prob. 12DQCh. 20 - Prob. 13DQCh. 20 - Explain how lowering inventory produces better...Ch. 20 - Prob. 15DQCh. 20 - Thomas Corporation produces heating units. The...Ch. 20 - Sterling Corporation has an EOQ of 5,000 units....Ch. 20 - Patz Company produces two types of machine parts:...Ch. 20 - Prob. 4CECh. 20 - See Cornerstone Exercise 20.4. Fisher Company has...Ch. 20 - Ottis, Inc., uses 640,000 plastic housing units...Ch. 20 - Ottis, Inc., uses 640,000 plastic housing units...Ch. 20 - Melchar Company uses 78,125 pounds of oats each...Ch. 20 - Prob. 9ECh. 20 - Morrison Manufacturing produces casings for sewing...Ch. 20 - Morrison Manufacturing produces casings for sewing...Ch. 20 - Refer to Exercise 20.10. Assume the economic lot...Ch. 20 - Eyring Manufacturing produces a component used in...Ch. 20 - Hales Company produces a product that requires two...Ch. 20 - Many companies have viewed JIT as a panaceaa...Ch. 20 - Prob. 16ECh. 20 - Prob. 17ECh. 20 - Which of the following describes the economic...Ch. 20 - The economic order quantity (EOQ) for Part X15 is...Ch. 20 - A JIT inventory management system maintains which...Ch. 20 - For the theory of constraints, which of the...Ch. 20 - A dedicated pharmaceutical plant uses the theory...Ch. 20 - Prob. 23PCh. 20 - Burnett Company produces two types of gears: Model...Ch. 20 - Taylor Company produces two industrial cleansers...Ch. 20 - Prob. 26PCh. 20 - Calen Company manufactures and sells three...Ch. 20 - Confer Company produces two different metal...Ch. 20 - Pratt Company produces two replacement parts for a...Ch. 20 - Bountiful Manufacturing produces two types of bike...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the annual ordering cost. 2. Compute the annual carrying cost. 3. Compute the cost of Ottiss current inventory policy. Is this the minimum cost? Why or why not?arrow_forwardCorazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?arrow_forwardMelchar Company uses 78,125 pounds of oats each year. The cost of placing an order is 18, and the carrying cost for one pound of oats is 0.45. Required: 1. Compute the economic order quantity for oats. 2. Compute the carrying and ordering costs for the EOQ.arrow_forward
- Sterling Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An order to replenish the part requires a lead time of five days. Required: 1. Calculate the reorder point, using Equation 20.3. 2. Graphically display the reorder point, where the vertical axis is inventory (units) and the horizontal axis is time (days). Show two replenishments, beginning at time zero with the economic order quantity in inventory. 3. What if the average usage per day of the part is 500 units but a daily maximum usage of 575 units is possible? What is the reorder point when this demand uncertainty exists?arrow_forwardThis year, Hassell Company will ship 4,000,000 pounds of chocolates to customers with total order-filling costs of 900,000. There are two types of customers: those who order 50,000 pound lots (small customers) and those who order 250,000 pound lots (large customers). Each customer category is responsible for buying 1,500,000 pounds. The selling price per pound is 2 per lb for the 50,000 pound lot and 3 per lb for the larger lots, due to differences in the type of chocolate. ABC would likely assign order-filling costs to the customer type as follows: a. 450,000, small; 450,000, large (using pounds as the driver) b. 360,000, small; 540,000, large (using revenue as the driver) c. 750,000, small; 150,000, large (using number of orders as the driver) d. 450,000, small; 450,000, large (using customer type as the driver)arrow_forwardVollmer Manufacturing makes three components for sale to refrigeration companies. The components are processed on two machines: a shaper and a grinder. The times (in minutes) required on each machine are as follows: The shaper is available for 120 hours, and the grinder for 110 hours. No more than 200 units of component 3 can be sold, but up to 1,000 units of each of the other components can be sold. In fact, the company already has orders for 600 units of component 1 that must be satisfied. The profit contributions for components 1, 2, and 3 are 8, 6, and 9, respectively. a. Formulate and solve for the recommended production quantities. b. What are the objective coefficient ranges for the three components? Interpret these ranges for company management. c. What are the right-hand-side ranges? Interpret these ranges for company management. d. If more time could be made available on the grinder, how much would it be worth? e. If more units of component 3 can be sold by reducing the sales price by 4, should the company reduce the price?arrow_forward
- ACE processing company uses 2,400 units of a product per year on a continuous basis. The product carrying costs are 60 per year and ordering costs are 252.05 per order. It takes 20 days to receive a shipment after an order is placed and the firm requires a safety stock of 8 days of usage in inventory. (a) Calculate the economic order quantity. (b) Calculate the total cost per year to order and carry this item.arrow_forwardRYX Manufacturing Company uses 1,000 units of Chip annually in its production. Order costs consist of P10 for placing a long-distance call to make the order and P40 for delivering the order by truck to the company warehouse. Each Chip costs P100 and the carrying costs are estimated at 15.625% of the inventory cost. What is the economic order quantity for Chip? _______________.arrow_forwardCorazon Manufacturing Company has a purchasing department staffed by five purchasingagents. Each agent is paid $28,000 per year and is able to process 4,000 purchase orders. Lastyear, 17,800 purchase orders were processed by the five agents.Required:1. Calculate the activity rate per purchase order.2. Calculate, in terms of purchase orders, the:a. total activity availabilityb. unused capacity3. Calculate the dollar cost of:a. total activity availabilityb. unused capacity4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for $14,000? How many pur-chase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?arrow_forward
- Jack’s Tracks sells 24,000 custom-designed GoKarts per year. These GoKarts are sold evenly throughout the year. The manufacturer charges Jack a $50 processing cost per order, and Jack incurs a carrying cost of $240 per year including storing each GoKart at a local warehouse. What is the economic order quantity for ordering materials?a. 100b. 1,000c. 2,000d. 10,000arrow_forwardThe F Inc.’s materials manager is considering the installation of a just-in-time (JIT) inventory system for L-20, one of the chemicals used in the production process. Currently, the chemical is purchased for $30 each pound. The firm uses 4,800 pounds L-20 per year. The controller estimates that it costs $150 to place and receive a typical order of L-20. The annual cost of storing L-20 is $1 per pound. F Inc.’s manufacturing engineering team identifies the following effects of adopting a JIT inventory system: 1) F Inc. will order 100 pounds L-20 each time. 2) The cost of placing an order for L-20 will be reduced to $20. 3) Suppliers would add $4 to the price per pound for frequent deliveries. 4) Currently there is a defect-assessment cost of $120,000 per year. This cost is expected a reduction of 20% under the JIT system. F Inc. requires a 10% annual rate of return on investment Required: From a financial perspective, determine whether it is in the best interest of F to…arrow_forwardA manufacturing company placed an order of 24,000 units semiannually at a price of $20 per unit. Its carryng cost is 15% and the order cost is $12 per order. Required: (i). What is the most economical order quantity? (ii). How many orders need to be placed?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Inventory management; Author: The Finance Storyteller;https://www.youtube.com/watch?v=DZhHSR4_9B4;License: Standard Youtube License