JJ Corporation resells one product to a small isolated community. It sells an average of 60 sacks, but may sell as low as 20 sacks and as high as 75 sack ecah day. The supply charges 500 per sack and an additional fixed cost of 1,300 for deliveries. It takes an average of ten days for orders to arrive. Investment in inventory are funded thru debt and equity ata weighted average cost of capital of 14%. How much would the minimum total annual inventory-related costs that JJ would incur if it applies the reorder point and eoq models? Use 365 days.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
JJ Corporation resells one product to a small isolated community. It sells an average of 60 sacks, but may sell as low as 20 sacks and as high as 75 sack ecah day. The supply charges 500 per sack and an additional fixed cost of 1,300 for deliveries. It takes an average of ten days for orders to arrive. Investment in inventory are funded thru debt and equity ata weighted average cost of capital of 14%. How much would the minimum total annual inventory-related costs that JJ would incur if it applies the reorder point and eoq models? Use 365 days.
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