Answered: (D) Vallie Enterprise sells a product…

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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(D) Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single order.

The maximum number of units sold for any one week is 150 and minimum sales 80 units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate.

i) What is the cost-minimizing solution for this product each year?
ii) Determine the re-order level, minimum inventory level and maximum inventory level for the product.

Transcribed Image Text:All Things Auto are retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the "DieHard" brand at a total cost of $168,200. The following transactions, relating to the "DieHard" brand were completed during the quarter: October 5 Purchased 15 batteries at a cost of $17,020 each. October 14 Sold 18 batteries at $22,25o per battery October 22 Purchased 24 batteries at a cost of $18,175 each but the supplier gave a 4% quantity discount. Sold 15 batteries to Orion Auto Ltd and 10 batteries to Brown's Auto Detailing at a price of $23,990 each. November 10 November 12 Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, All Things Auto paid $288 in cash on each battery to have the inventory shipped from the vendor's warehouse to their location. November 27 Sold 23 batteries which yielded total sales revenue of $576,840. (8 of these batteries were sold on account to Middletown Fuel & Auto Accessories a longstanding customer) November 30 A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the "Duralast" brand. In preparation for the festive season, All Things purchased 25 batteries at a total cost of $474,500. December 2 December 15 5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. December 30 Sold 22 batteries to two customers (Omega Traders & Middleton Auto Accessories) at a selling price of $26,950 each. December 31 An actual count of inventory was carried out which revealed that there were 9 units of the "DieHard" brand in the warehouse. All purchases were on account and received on the dates stated. Required: (A) Prepare a perpetual inventory record for All Things Auto, using the first in, first out (FIFO) method to determine the value of ending inventory at December 31, 2020, and the total amount to be assigned to cost of goods sold for the period. Given that selling, distribution and administrative costs for the quarter were $23,445, $10,250 and$75,435 respectively, prepare an income statement for All Things Auto (DieHard) for the quarter ended December 31, 2020, to determine the net profit for the quarter. (B) (C) Journalize the transactions on November 12 and November 27, assuming the business uses a: Perpetual inventory system Periodic inventory system (D) Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single order. The maximum number of units sold for any one week is 150 and minimum sales 8o units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate. i) What is the cost minimizing solution for this product each year? ii) Determine the re-order level, minimum inventory level and maximum inventory level for the product.

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