A supplier sells MF Tires to dealers. The annual demand is approximately 1,000 tires. The supplier pays P50 for each tire and estimates that the annual holding cost is 20 percent of the total value of tires. It costs approximately P25 to place an order. The supplier currently orders 80 tires per month. Required: a. Calculate ordering, holding, and total inventory costs for the current ordered quantity. b. Determine the EOQ. c. How many orders will be placed per year using the EOQ? d. Calculate ordering, holding, and total inventory costs for the EOQ and also determine the change in total inventory cost.
A supplier sells MF Tires to dealers. The annual demand is approximately 1,000 tires. The supplier pays P50 for each tire and estimates that the annual holding cost is 20 percent of the total value of tires. It costs approximately P25 to place an order. The supplier currently orders 80 tires per month. Required: a. Calculate ordering, holding, and total inventory costs for the current ordered quantity. b. Determine the EOQ. c. How many orders will be placed per year using the EOQ? d. Calculate ordering, holding, and total inventory costs for the EOQ and also determine the change in total inventory cost.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A supplier sells MF Tires to dealers. The annual demand is approximately
1,000 tires. The supplier pays P50 for each tire and estimates that the annual
holding cost is 20 percent of the total value of tires. It costs approximately
P25 to place an order. The supplier currently orders 80 tires per month.
Required:
a. Calculate ordering, holding, and total inventory costs for the
current ordered quantity.
b. Determine the EOQ.
c. How many orders will be placed per year using the EOQ?
d. Calculate ordering, holding, and total inventory costs for the EOQ
and also determine the change in total inventory cost.
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