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pare parts to order with the rayage value of $75 each. The distril FREQUENCY

pare parts to order with the rayage value of $75 each. The distril FREQUENCY

FINANCIAL ACCOUNTING
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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Question 4 A manager wants to purchase a new piece of processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $250 each, and any unused spares will have an expected salvage value of $75 each. The distribution of usage of parts is shown in the following table: NUMBER 0 2 3 4 5 FREQUENCY 0.2 0.2 0.2 0.15 0.15 0.1 If the part fails and a spare is not available, it will take three days to obtain a replacement and install it. The cost for idle equipment is $500 per day. a) What quantity of spares should be stocked? b) Assume the supplier of the parts offers a 20% discount (all units discount) for purchasing five units or more. Do you think the order quantity will be different? If yes, propose the new order quantity.,
Transcribed Image Text:Question 4 A manager wants to purchase a new piece of processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $250 each, and any unused spares will have an expected salvage value of $75 each. The distribution of usage of parts is shown in the following table: NUMBER 0 2 3 4 5 FREQUENCY 0.2 0.2 0.2 0.15 0.15 0.1 If the part fails and a spare is not available, it will take three days to obtain a replacement and install it. The cost for idle equipment is $500 per day. a) What quantity of spares should be stocked? b) Assume the supplier of the parts offers a 20% discount (all units discount) for purchasing five units or more. Do you think the order quantity will be different? If yes, propose the new order quantity.,
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