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Q!) Compute EOQ/ELS for two cases given below.

Raw Material LRM:

Annual demand has historically been about 15,000 units. Each unit costs about $40. For annual report, due out in June, corporate accounting department computes inventory-holding costs by multiplying value of each item by 0.40. Director of buying told you that his "cost of ordering" is about $82 per order. He is presently ordering 1,000 at a time. How large must standard order size be for this product? How much are Purchasing Director's policies costing your company? (Compute ordering and holding costs associated with his policies and compare them to "optimal" ordering and holding costs.)

Finished Product CLM:

Annual demand has historically been about 5,700 units. Sales price for each unit of CLM is about $48. Production line which manufactures CLM can make 100 units per day, but it presently has 170 days per year devoted to manufacturing another project-assume 250 total production days per year. Setup cost for product CLM averages $500 per setup. How large must production runs be for CLM?

 

Accounting Basics, Accounting

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