Botani Ltd. is budgeting to use 6,000 units of material during the year. Production will be distributed evenly throughout the year. The company does not carry any safety (buffer) levels of inventory. The following additional information is available: Cost of material RM60 per unit Ordering costs RM500 per order Inventory holding costs 8% of the average inventory value per annum Order sizes available 500, 1000, 1500, 2000 and 3000 units Required: Complete the
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
- Botani Ltd. is budgeting to use 6,000 units of material during the year. Production will be distributed evenly throughout the year. The company does not carry any safety (buffer) levels of inventory. The following additional information is available:
Cost of material RM60 per unit
Ordering costs RM500 per order
Inventory holding costs 8% of the average inventory value per annum
Order sizes available 500, 1000, 1500, 2000 and 3000 units
Required:
- Complete the table to show the total annual ordering and inventory holding costs of material for each order size.
- Identify the optimum order size that would minimise total cost.
- The supplier is now proposing to supply the material only in quantities of 1,000; 2,000 or 3,000 units; and is willing to offer the following quantity discounts:
|
Order size |
1,000 |
2,000 |
3,000 |
|
Quantity |
2.5% |
3% |
7.5% |
Required:
Complete the table of inventory to show the annual costs for Botani Ltd. if the above quantity discounts are available. Identify the order quantity that would minimise costs.
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