SY Manufacturers (SYM) is producing T-shirts in three colors: red, blue, and white. Themonthly demand for each color is 3,000 units. Each shirt requires 0.5 pound of raw cottonthat is imported from Luft-Geshfet-Textile (LGT) Company in Brazil. The purchasingprice per pound is $2.50 (paid only when the cotton arrives at SYM’s facilities) andtransportation cost by sea is $0.20 per pound. The traveling time from LGT’s facility inBrazil to the SYM facility in the United States is two weeks. The cost of placing a cottonorder, by SYM, is $100 and the annual interest rate that SYM is facing is 20 percent.a. What is the optimal order quantity of cotton?b. How frequently should the company order cotton?c. Assuming that the i rst order is needed on April 1, when should SYM place theorder?d. How many orders will SYM place during the next year?e. What is the resulting annual holding cost?f. What is the resulting annual ordering cost?g. If the annual interest cost is only 5 percent, how will it affect the annual number oforders, the optimal batch size, and the average inventory? (You are not expected toprovide a numerical answer to this question. Just describe the direction of the changeand explain your answer.)

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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SY Manufacturers (SYM) is producing T-shirts in three colors: red, blue, and white. The
monthly demand for each color is 3,000 units. Each shirt requires 0.5 pound of raw cotton
that is imported from Luft-Geshfet-Textile (LGT) Company in Brazil. The purchasing
price per pound is $2.50 (paid only when the cotton arrives at SYM’s facilities) and
transportation cost by sea is $0.20 per pound. The traveling time from LGT’s facility in
Brazil to the SYM facility in the United States is two weeks. The cost of placing a cotton
order, by SYM, is $100 and the annual interest rate that SYM is facing is 20 percent.
a. What is the optimal order quantity of cotton?
b. How frequently should the company order cotton?
c. Assuming that the i rst order is needed on April 1, when should SYM place the
order?
d. How many orders will SYM place during the next year?
e. What is the resulting annual holding cost?
f. What is the resulting annual ordering cost?
g. If the annual interest cost is only 5 percent, how will it affect the annual number of
orders, the optimal batch size, and the average inventory? (You are not expected to
provide a numerical answer to this question. Just describe the direction of the change
and explain your answer.)
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