PROBLEM 2 The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat amually. The wheat must be purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500, are P5,000 per order. Annual carrying costs are 2 percent of the purchase price of PS maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. per bushel. The company REQUIRED: 1. At what inventory level should an order be placed to prevent having to draw on the safety stock? 2. What are the total inventory costs, including the costs of carying the safety stock? 3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat in quantities of 650,000 bushels. Would it be to Strawbery Bread's advantage to order under this altemative?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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PROBLEM 2
The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat ammally. The wheat must
be purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500,
are P5,000 per order. Anmual carrying costs are 2 percent of the purchase price of PS per bushel. The
maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks.
company
REQUIRED
1.
2. What are the total inventory costs, including the costs of carying the safety stock?
3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat in
quantities of 650,000 bushels. Would it be to Strawberry Bread's advantage to order under this altemative?
At what inventory level should an order be placed to prevent having to draw on the safety stock?
Transcribed Image Text:PROBLEM 2 The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of wheat ammally. The wheat must be purchased in multiples of 2,000 bushels. Ordering costs, which include grain elevator removal charges of P3,500, are P5,000 per order. Anmual carrying costs are 2 percent of the purchase price of PS per bushel. The maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks. company REQUIRED 1. 2. What are the total inventory costs, including the costs of carying the safety stock? 3. The wheat processor agrees to pay the elevator removal charges if Strawberry Bread will purchase wheat in quantities of 650,000 bushels. Would it be to Strawberry Bread's advantage to order under this altemative? At what inventory level should an order be placed to prevent having to draw on the safety stock?
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