Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 20, Problem 11QP
Summary Introduction
To determine: The economic order quantity (EOQ).
Introduction:
Economic order quantity refers to a model or tool designed for reducing the total costs (carrying costs and ordering costs) of the inventory.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Q5./Suppose that the demand for a product is 10000 per year and the
items are withdrawn uniformly. The order cost is 1000$ and the inventory
holding cost 6$ per item per year. If shortages cost 5$ per item per year.
Find:
1. The economic order quantity
2. Maximum inventory (I Max)
3. The number of ordering during the year (Order frequency)
4. The interval between two orders
QUESTION 5
A). What are inventories? Why are they important to manufacturing
companies?
B). What is the difference between FIFO and LIFO?
C). Given the following data, calculate a level production plan,
quarterly ending inventory, and average quarterly inventory. If
inventory carrying costs are $6 per unit per quarter, what is the
annual carrying cost? Opening and ending inventory are zero.
Quarter 1 Quarter 2| Quarter 3 Quarter 4 Totals
$
Forecast Demand
5000
7000
8500
9500
Production
Ending Inventory
Average Inventory
Inventory Cost
If the company always carries 100 units of safety stock, what is the annual
cost of carrying it?
D) Perform an ABC analysis on the following set of products.
Annual
Item
Demand
Unit Cost
A211
800
$9
B390
100
$90
C003
450
$6
D100
400
$100
E707
85
$2,000
F660
250
$320
G473
500
$75
H921
100
$75
What is the economic order size? (EOQ)Additionally, find the Total cost, Average Inventory, and Order frequency
Chapter 20 Solutions
Fundamentals of Corporate Finance
Ch. 20.1 - Prob. 20.1ACQCh. 20.1 - Prob. 20.1BCQCh. 20.2 - What considerations enter into the determination...Ch. 20.2 - Explain what terms of 3/45, net 90 mean. What is...Ch. 20.3 - Prob. 20.3ACQCh. 20.3 - Explain how to estimate the NPV of a credit policy...Ch. 20.4 - What are the carrying costs of granting credit?Ch. 20.4 - What are the opportunity costs of not granting...Ch. 20.4 - Prob. 20.4CCQCh. 20.5 - Prob. 20.5ACQ
Ch. 20.5 - Prob. 20.5BCQCh. 20.6 - Prob. 20.6ACQCh. 20.6 - What is an aging schedule?Ch. 20.7 - What are the different types of inventory?Ch. 20.7 - What are three things to remember when examining...Ch. 20.7 - Prob. 20.7CCQCh. 20.8 - Prob. 20.8ACQCh. 20.8 - Which cost component of the EOQ model does JIT...Ch. 20.A - Prob. 1ACQCh. 20.A - Prob. 1BCQCh. 20.A - Evaluating Credit Policy [LO2] Bismark Co. is in...Ch. 20.A - Credit Policy Evaluation [LO2] The Johnson Company...Ch. 20.A - Prob. 3QPCh. 20.A - Prob. 4QPCh. 20.A - Prob. 5QPCh. 20 - What is the difference between the accounts...Ch. 20 - Prob. 20.2CTFCh. 20 - Prob. 20.7CTFCh. 20 - Prob. 1CRCTCh. 20 - Prob. 2CRCTCh. 20 - Prob. 3CRCTCh. 20 - Five Cs of Credit [LO1] What are the five Cs of...Ch. 20 - Prob. 5CRCTCh. 20 - Prob. 6CRCTCh. 20 - Prob. 7CRCTCh. 20 - Prob. 8CRCTCh. 20 - Prob. 9CRCTCh. 20 - Prob. 10CRCTCh. 20 - Prob. 1QPCh. 20 - Size of Accounts Receivable [LO1] The Red Zeppelin...Ch. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Terms of Sale [LO1] A firm offers terms of 1/10,...Ch. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Evaluating Credit Policy [LO2] Air Spares is a...Ch. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 19QPCh. 20 - Prob. 20QPCh. 20 - Prob. 21QPCh. 20 - Prob. 22QPCh. 20 - Credit Policy at Howlett Industries Sterling...Ch. 20 - Prob. 2M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 1. Calculating Costs and Break-Even [LO3] Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $11.13 per unit, and the variable labor cost is $7.29 per unit. a. What is the variable cost per unit? b. Suppose the company incurs fixed costs of $875,000 during a year in which total production is 190,000 units. What are the total costs for the year? c. If the selling price is $44.99 per unit, does the company break even on a cash basis? If depreciation is $435,000 per year, what is the accounting break-even point?arrow_forwardExercise 6 Bruce Co. has 4500 units in inventory. It made the product last year at a cost of $54 each. This year's model is much better and the 4500 units can't be sold at last year's regular price. Bruce Co. has two alternatives. It could sell the inventory to a wholesaler for $45 each or it could rework the inventory at a cost of $27900 and then sell them for $63 each. What is the financial impact of reworking the units? Should Bruce sell now or rework? Reworkarrow_forward17. Assume a company produces one product that sells for P55, has variable cost per unit of P35, and has fixed costs of P100,000. How many units must the company sell to earn a target profit of P50,000? 18. Given the same facts as in question 17 above, if the company exactly meets its target profit, what will be its margin of safety in sales revenue? P137,500 P150,000 P127,500 P110,000arrow_forward
- 5. Assume Wyteboard Corp. markers uses 1,440,000 gallons ofink each year. Assume Palmer will order the ink at a rate of P2 per gallon plus a fixed cost of P100 per order. At cost, the firm's carrying cost is 20% of the inventory value. What is Wyteboard's minimum costs of ordering and holding inventory?arrow_forward1. Cash Discounts [LO1] You place an order for 300 units of inventory at a unit price of $140. The supplier offers terms of 1/10, net 30. a. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit? b. What is the discount being offered? How quickly must you pay to get the discount? If you do take the discount, how much should you remit? 701 c. If you don't take the discount, how much interest are you paying implicitly? How many days’ credit are you receiving?arrow_forward5. Assume Wyteboard Corp. markers uses 1,440,000 gallons of ink each year. Assume Palmer will order the ink at a rate of P2 per gallon plus a fixed cost of P100 per order. At cost, the firm's carrying cost is 20% of the inventory value. What is Wyteboard's minimum costs of ordering and holding inventory?arrow_forward
- Price $12 $10 $8 $6 $4 $2 D1 5 8 11 13 16 18 D2 9 12 15 18 21 24 a 5 unit shortage will result. a 5 unit surplus will result. Refer to the table. Suppose that D1 and S2 are the demand and supply schedules for Product A. If the government imposes a price ceiling of $4, then: a 10 unit surplus will result. S1 19 17 15 13 11 9 a 10 unit shortage will result. S2 14 12 10 8 6 4arrow_forwardThe efficiency gains resulting from a just-in-time inventory management system will allow a firm to reduce its level of inventories permanently by $519,000. What is the most the firm should be willing to pay for installing the system?arrow_forwardAnswer for this question please do provide solution as possible. Thank you so much!arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner; Author: Accounting Step by Step;https://www.youtube.com/watch?v=D0MOfse9OWk;License: Standard Youtube License