Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN: 9781305970663

Author: Don R. Hansen, Maryanne M. Mowen

Publisher: Cengage Learning

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Textbook Question

Chapter 20, Problem 1CE

Thomas Corporation produces heating units. The following values apply for a part used in their production (purchased from external suppliers):

D = 12,500

Q = 250

P = $45

C = $4.50

Required:

1. For Thomas, calculate the ordering cost, the carrying cost, and the total cost associated with an order size of 250 units.
2. Calculate the EOQ and its associated ordering cost, carrying cost, and total cost. Compare and comment on the EOQ relative to the current order quantity.
3. What if Thomas enters into an exclusive supplier agreement with one supplier who will supply all of the demands with smaller, more frequent orders? Under this arrangement, the ordering cost is reduced to $0.45 per order. Calculate the new EOQ and comment on the implications.

Expert Solution & Answer

Chapter 20 Solutions

Cornerstones of Cost Management (Cornerstones Series)

Ch. 20 - What are ordering costs? What are setup costs?...Ch. 20 - Explain why, in the traditional view of inventory,...Ch. 20 - Discuss the traditional reasons for carrying...Ch. 20 - Prob. 4DQ Ch. 20 - Explain how safety stock is used to deal with...Ch. 20 - Prob. 6DQ Ch. 20 - What approach does JIT take to minimize total...Ch. 20 - One reason for inventory is to prevent shutdowns....Ch. 20 - Prob. 9DQ Ch. 20 - Explain how long-term contractual relationships...

Ch. 20 - What is a constraint? An internal constraint? An...Ch. 20 - Prob. 12DQ Ch. 20 - Prob. 13DQ Ch. 20 - Explain how lowering inventory produces better...Ch. 20 - Prob. 15DQ Ch. 20 - Thomas Corporation produces heating units. The...Ch. 20 - Sterling Corporation has an EOQ of 5,000 units....Ch. 20 - Patz Company produces two types of machine parts:...Ch. 20 - Prob. 4CE Ch. 20 - See Cornerstone Exercise 20.4. Fisher Company has...Ch. 20 - Ottis, Inc., uses 640,000 plastic housing units...Ch. 20 - Ottis, Inc., uses 640,000 plastic housing units...Ch. 20 - Melchar Company uses 78,125 pounds of oats each...Ch. 20 - Prob. 9E Ch. 20 - Morrison Manufacturing produces casings for sewing...Ch. 20 - Morrison Manufacturing produces casings for sewing...Ch. 20 - Refer to Exercise 20.10. Assume the economic lot...Ch. 20 - Eyring Manufacturing produces a component used in...Ch. 20 - Hales Company produces a product that requires two...Ch. 20 - Many companies have viewed JIT as a panaceaa...Ch. 20 - Prob. 16E Ch. 20 - Prob. 17E Ch. 20 - Which of the following describes the economic...Ch. 20 - The economic order quantity (EOQ) for Part X15 is...Ch. 20 - A JIT inventory management system maintains which...Ch. 20 - For the theory of constraints, which of the...Ch. 20 - A dedicated pharmaceutical plant uses the theory...Ch. 20 - Prob. 23P Ch. 20 - Burnett Company produces two types of gears: Model...Ch. 20 - Taylor Company produces two industrial cleansers...Ch. 20 - Prob. 26P Ch. 20 - Calen Company manufactures and sells three...Ch. 20 - Confer Company produces two different metal...Ch. 20 - Pratt Company produces two replacement parts for a...Ch. 20 - Bountiful Manufacturing produces two types of bike...

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