Fan Base (FB) operates a megastore featuring sports merchandise. It uses an E0Q decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2011 are as follows: Expected annual demand for Galaxy jerseys Ordering cost per purchase order Carrying cost per year Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year comprises the required return on investment of $4.80 (12% x $40 purchase price) plus $2.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is 7 days. FB is open 365 days a year. a) Calculate the E0Q. Required 10,000 $200 $7 per jersey b) Calculate the number of orders that will be placed each year. c) Calculate the reorder point.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Fan Base (FB) operates a megastore featuring sports merchandise. It uses an E0Q
decision model to make inventory decisions. It is now considering inventory decisions for
its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for
2011 are as follows:
Expected annual demand for Galaxy jerseys
Ordering cost per purchase order
Carrying cost per year
Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year
comprises the required return on investment of $4.80 (12% x $40 purchase price) plus
$2.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is
7 days. FB is open 365 days a year.
a) Calculate the E0Q. Required
10,000
$200
$7 per jersey
b) Calculate the number of orders that will be placed each year.
c) Calculate the reorder point.
Transcribed Image Text:Fan Base (FB) operates a megastore featuring sports merchandise. It uses an E0Q decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2011 are as follows: Expected annual demand for Galaxy jerseys Ordering cost per purchase order Carrying cost per year Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year comprises the required return on investment of $4.80 (12% x $40 purchase price) plus $2.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is 7 days. FB is open 365 days a year. a) Calculate the E0Q. Required 10,000 $200 $7 per jersey b) Calculate the number of orders that will be placed each year. c) Calculate the reorder point.
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