alculate the cost of the current ordering policy and determine the saving that could be made by using the economic order quantity model.
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Mona PLC is a Zambian well-known company that sells goods locally within Zambia. The recently appointed Management Accountant of Mona PLC has been studying the working capital management of the company and has congregated the following information:
Inventory management the current policy is to order 100,000 units when the inventory level reduces to 35,000 units. Prediction demand to meet production requirements during the next year is 625,000 units. The cost of placing and processing an order is K250, while the cost of holding a unit in stores is K0.50 per unit per year. Both costs are expected to be constant during the next year. Orders are received two weeks after being placed with the supplier. You should assume a 50- week year and that demand is constant throughout the year.
Accounts receivable management
Local customers are allowed 30 days’ credit, but the financial statements of Mona PLC shows that the average accounts receivables period in the last financial year was 75 days. The Management Accountant also noted that
Required:
(b) Calculate the cost of the current ordering policy and determine the saving that could be made by using the economic order quantity model.
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