Alexander pump LLC uses about 75000 valves per year and the usage is fairly constant at 6250 units per month. The valve cost of RO 1.50 per unit when bought in large quantities, and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is RO18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3250 vales is desired. You are required to determine. a. The most economical order quantity and frequency of orders. b. The most economical order quantity if the valves cost is RO 4.50 each instead of RO 1.50 each
Alexander pump LLC uses about 75000 valves per year and the usage is fairly constant at 6250 units per month. The valve cost of RO 1.50 per unit when bought in large quantities, and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is RO18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3250 vales is desired. You are required to determine. a. The most economical order quantity and frequency of orders. b. The most economical order quantity if the valves cost is RO 4.50 each instead of RO 1.50 each
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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5. Alexander pump LLC uses about 75000 valves per year and the usage is fairly constant at 6250 units
per month. The valve cost of RO 1.50 per unit when bought in large quantities, and the carrying cost is
estimated to be 20% of average inventory investment on an annual basis. The cost to place an order
and process the delivery is RO18.
It takes 45 days to receive delivery from the date of an order and a safety stock of 3250 vales is
desired.
You are required to determine.
a. The most economical order quantity and frequency of orders.
b. The most economical order quantity if the valves cost is RO 4.50 each instead of RO 1.50 each
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