Enrun Corporation expects to order 140,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $20; and the firm’s inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.) How many orders should Enrun place during the year? If the lead time for placing an order is 5 days, and Enrun holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed? If Enrun holds a safety stock equal to a 30-day supply of chips, what is Enrun’s minimum cost of ordering and carrying inventory?
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.
Enrun Corporation expects to order 140,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $20; and the firm’s inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)
- How many orders should Enrun place during the year?
- If the lead time for placing an order is 5 days, and Enrun holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?
- If Enrun holds a safety stock equal to a 30-day supply of chips, what is Enrun’s minimum cost of ordering and carrying inventory?
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