EOQ and LEAN ACCOUNTING In-Class Illustration #1 XYZ, Inc. expects to sell 180,000 units of its product next year. The cost to purchase a unit is $44.00. The selling price is $80.00 per unit; sales commission is 10%. The clerical cost to place an order totals $15.00. The purchasing manager draws a salary of $60,000.00 per year. Obsolescence insurance costs $5.00 per unit per year for the weighted average number of units on hand. When units are acquired, the transportation fee is $50.00 per shipment, plus $1.00 per unit. The firm's cost of capital is 12%. Annual depreciation on the warehouse building amounts to $15,000.00. XYZ's demand for its product is uniform throughout the year and the supplier takes two days to deliver when an order is placed. Required: A. Determine the optimal number of units the firm should order each time it places an order. B. Based on 'A' above, what are the total relevant ordering and carrying costs the firm should expect to incur during the next year?
EOQ and LEAN ACCOUNTING In-Class Illustration #1 XYZ, Inc. expects to sell 180,000 units of its product next year. The cost to purchase a unit is $44.00. The selling price is $80.00 per unit; sales commission is 10%. The clerical cost to place an order totals $15.00. The purchasing manager draws a salary of $60,000.00 per year. Obsolescence insurance costs $5.00 per unit per year for the weighted average number of units on hand. When units are acquired, the transportation fee is $50.00 per shipment, plus $1.00 per unit. The firm's cost of capital is 12%. Annual depreciation on the warehouse building amounts to $15,000.00. XYZ's demand for its product is uniform throughout the year and the supplier takes two days to deliver when an order is placed. Required: A. Determine the optimal number of units the firm should order each time it places an order. B. Based on 'A' above, what are the total relevant ordering and carrying costs the firm should expect to incur during the next year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:EOQ and LEAN ACCOUNTING In-Class Illustration #1XYZ, Inc. expects to sell 180,000 units of its
product next year. The cost to purchase a unit is $44.00. The selling price is $80.00 per unit; sales
commission is 10%. The clerical cost to place an order totals $15.00. The purchasing manager draws
a salary of $60,000.00 per year. Obsolescence insurance costs $5.00 per unit per year for the
weighted average number of units on hand. When units are acquired, the transportation fee is
$50.00 per shipment, plus $1.00 per unit. The firm's cost of capital is 12%. Annual depreciation on
the warehouse building amounts to $15,000.00. XYZ's demand for its product is uniform throughout
the year and the supplier takes two days to deliver when an order is placed. Required:
A. Determine the optimal number of units the firm should order each time it places an order.
B. Based on 'A' above, what are the total relevant ordering and carrying costs the firm should expect
to incur during the next year?
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