Calculate the order quantity that would minimize the cost of item Z. management accounting Lebar Daun Sdn Bhd is planning to use the economic order quantity model to determine theoptimal order levels of raw materials. Material Z is consumed evenly over the year and thecurrent usage is 120,000 units. The material is purchased in boxes and each box contains 12units of material Z, at a price of RM252 per box. A safety stock of 200 boxes is kept.The cost of placing and handling orders is estimated to be RM6,300, which is based costincurred for similar orders that have already made. The cost of RM6,300 was for 30 orders.The inflation of 2 per cent should be added to the above ordering costs.Besides, the company estimates to be charged the transporation cost of RM15 per order. Itshould be assumed that ordering costs change in proportion to the number of orders place.Other costs which relate to material Z such as insurance, interest and space costs for a year,were calculated at 15 % of the purchase price.Required:a. Calculate the order quantity that would minimize the cost of item Z.b. Determine number of order in a year.c. Determine the required frequency of placing orders (in week).

Economic order quantity (EOQ), is the optimum amount of an item that should be ordered at any given…

Answered: Calculate the order quantity that would…

Business

Accounting

Calculate the order quantity that would minimize the cost of item Z.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Calculate the order quantity that would minimize the cost of item Z.

management accounting

Lebar Daun Sdn Bhd is planning to use the economic order quantity model to determine the
optimal order levels of raw materials. Material Z is consumed evenly over the year and the
current usage is 120,000 units. The material is purchased in boxes and each box contains 12
units of material Z, at a price of RM252 per box. A safety stock of 200 boxes is kept.
The cost of placing and handling orders is estimated to be RM6,300, which is based cost
incurred for similar orders that have already made. The cost of RM6,300 was for 30 orders.
The inflation of 2 per cent should be added to the above ordering costs.
Besides, the company estimates to be charged the transporation cost of RM15 per order. It
should be assumed that ordering costs change in proportion to the number of orders place.
Other costs which relate to material Z such as insurance, interest and space costs for a year,
were calculated at 15 % of the purchase price.
Required:
a. Calculate the order quantity that would minimize the cost of item Z.
b. Determine number of order in a year.
c. Determine the required frequency of placing orders (in week).

Definition Definition Process by which financial information is analyzed, interpreted, and communicated to managers to support the achievement of an organization's goals. The main objective of managerial accounting is to maximize profits and minimize losses.

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