The production department for a company requires 3,600 Kg of raw material for manufacturing aparticular item per year, It has been estimated that the cost of placing an order is Rs. 36 and the cost ofcarrying inventory is 25 per cent of the investment in the inventories. The price is Rs. 10 per kg. Thepurchase manager wishes to determine an ordering policy for raw material. Calculate (1) The optimal lotsize (2) The optimal order cycle time (3) The minimum yearly variable inventory cost (4) The minimumyearly total inventory cost.

Given that : Raw material Required = 3600 Kg per year to manufacture particular item Cost of placing…

Answered: The production department for a company…

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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Lay's Potato Chips is examining their Wavy Lays chip line. They began the year expecting to produce 500,000 bags of potato chips. They projected that each bag would require 3 pounds of potatos and 1.5 hours of labor to manufacture. They planned to pay $2 per pound for potatos and $20 per hour for labor. They also budgeted $900,000 for variable manufacturing overhead costs and $ 450,000 of fixed manufacturing overhead costs, with both variable and fixed manufacturing overhead costs being allocated based on direct labor hours. At the end of the year, Lay's finds that they produced 880,000 bags of potato chips, using 3.25 pounds of potatos per bag and 1.25 hours of labor per bag. Due to significant inflation, the purchasing department made a deal with the supplier and purchased 3,000,000 pounds of potatos for a per-pound price of $3.25. They also spent $22 per hour for direct labor. The Wavy Lays chip line spent $843,000 on variable manufacturing overhead costs and $562,000 on fixed…
During the next four months, a customer requires,respectively, 600, 800, 1200, and 900 units of acommodity, and no backlogging is allowed (that is,the customer’s requirements must be met on time).Production costs are $80, $100, $105, and $90 per unitduring these months. The storage cost from one month to the next is $20 per unit (assessed on ending inven-tory). It is estimated that each unit on hand at the end of month 4 can be sold for $60. Assume there is nobeginning inventory.a. Determine how to minimize the net cost incurred inmeeting the demands for the next four months.b. Use SolverTable to see what happens to the decisionvariables and the total cost when the initial inventoryvaries from 0 to 1000 in 100-unit increments. Howmuch lower would the total cost be if the companystarted with 100 units in inventory, rather than none?Would this same cost decrease occur for every100-unit increase in initial inventory?

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