What is the annual demand for the product in pounds?
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50,000 pounds.
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What is the annual demand for the product in pounds?
50,000 pounds.
What does LIFO stand for in inventory valuation?
Last In, First Out.
How is the maximum level calculated?
Maximum Level = Reorder level + Reorder quantity - (Minimum Usage x Minimum Lead Time).
How many units were received on May 1?
800 units.
What does the minimum inventory level indicate to management?
That inventories are approaching a dangerously low level and stockouts are possible.
When is an inventory count typically conducted?
At a certain date.
What was the unit cost of parts received on May 4?
$24.
What is the maximum inventory level in the given solution?
8,600 units.
What does FIFO stand for in inventory valuation?
First In, First Out.
What is the Re-Order Level (ROL) calculated for maximum usage of 300 units and maximum lead of 14 days?
4,200 units.
Why is purchasing inventory considered a significant cost for organizations?
Because it is usually one of the largest costs faced by an organization.
What is the formula for calculating EOQ?
EOQ = √(2CoD)/Ch.
What is the formula for calculating EOQ?
EOQ = √(2CoD) / Ch
What does LIFO stand for in inventory valuation?
Last In, First Out.
What is the cost price for one unit of the gel ink pen?
$375.
What is the cost of holding one item for the year?
$1.50.
What is the formula for calculating the Reorder Level (ROL)?
ROL = [max usage x max lead time].
What is the cost per barrel for Crystal Supplies Limited?
$12.
What aspect of inventory does proper record-keeping help maintain?
Quality.
How many units were received on May 4?
600 units.
What is the calculated EBQ in this example?
1,000 units.
What document is used to acknowledge the receipt of goods?
Goods received note (GRN).
What is the optimum order size in EOQ?
The Reorder Quantity (ROQ) that minimizes the balance of ordering and holding costs.
When should materials be available in an efficient material control system?
At the right time.
What is the formula for calculating EOQ ignoring discounts?
EOQ = √(2CoD) / Ch
What is the first function of an inventory control system?
The ordering of inventory.
What is the total value of raw materials issued by Sandy Bay Sweets Limited?
$20,000,000.
What percentage of the material issued can be directly traced to the production process?
100%.
How is the reorder level calculated?
Reorder level = Maximum Usage x Maximum Lead Time.
What is the journal entry to record materials issued from store for production?
Debit: WIP (Direct) 20,000,000.
What account is debited when materials are issued for production?
WIP (Work in Progress) account.
What is the formula for average inventory in the EOQ model?
Average inventory = (Q/2) + safety stock.
What is the journal entry to record materials issued from store when 40% is directly related to production?
Debit WIP (Direct) 12,000,000, Credit Material control account $20,000,000.
What is an advantage of the LIFO inventory method?
Inventories are issued at a price close to current market value.
What is assumed about the ordering cost in the EOQ model?
The ordering cost is known and constant.
What is the FIFO cost of sales?
$26,560.
What happens to closing inventory under FIFO in inflationary conditions?
Higher priced items make up closing inventory.
What is the total number of units needed over a given time period in the EOQ model example?
500,000 units.
What is the formula to calculate the total cost at EBQ?
Total Cost = (Demand / EBQ) * Setup Cost + (EBQ / 2) * Holding Cost.
How many weeks per annum is the factory in operation?
50 weeks.
What inventory valuation method is used in the provided solution?
LIFO (Last In, First Out).
What challenge might managers face with FIFO regarding costs?
They may find it difficult to compare costs and make decisions when charged varying prices for the same materials.
What inventory valuation method is used in the provided solution?
FIFO (First In, First Out).
What quality aspect is important in an efficient material control system?
The right quality of material.
How can management assess inventory control levels?
By evaluating past inventory usage and delivery times.
What is the average inventory calculated in the solution?
4,200 units.
What are the three key inventory control levels?
Minimum, Maximum, and Reorder Level.
What is the third function of an inventory control system?
The receipt of goods into stores.
What is the formula for total cost in inventory management?
Total cost = Order cost (Co) + Carrying cost (Ch) + Purchase cost (PC).
What is an example of a classification error in inventory?
Stainless steel classified as mild steel.
What is a disadvantage of the AVCO method related to issue pricing?
The resulting issue price is rarely an actual price that has been paid and can run to several decimal places.
What does FIFO stand for in inventory valuation?
First In, First Out.
How do you calculate the number of orders in the EOQ model?
Number of orders = D/Q.
What is the difference between Mark-Up and Margin?
Mark-Up is a percentage of Cost Price, while Margin is a percentage of Selling Price.
What does 'Co' represent in the EOQ formula?
Cost per order.
How must transactions be processed in inventory management?
In strict date order.
What is the average cost per unit on May 1?
$20.00.
What is a challenge in explaining LIFO to managers?
It is often the opposite of what is physically happening, making it difficult to explain.
How many units does XJL Limited purchase at the end of each quarter?
6,250 units.
What is the closing inventory used in FIFO calculation?
$12,800.
What is the closing inventory used in LIFO calculation?
$9,600.
How many sandwiches does Chester Fries sell annually?
5,000,000 sandwiches.
What does C h represent in the EBQ formula?
Holding cost per unit.
How many units were issued on May 25?
360 units.
What is the total cost at the current policy?
To be calculated based on current ordering and holding costs.
How many times does Chester Fries currently buy flour per year?
100 times per year.
What is the purchase cost (PC) at 4,500 units with a 1% discount?
$231,660.
What is the total cost at EOQ (4,000 units) with a 0% discount?
$236,600.
What is inventory often defined as?
A complete listing of merchandise or stock on hand, bought or made each year by a business.
What document is used for requesting materials, transferring, or returning them?
Materials requisition, transfer or returned note.
What is a key characteristic of an efficient system of material control?
Ensures availability of the right quantity of material.
When is periodic stocktaking typically conducted?
At the end of an accounting period.
What does C_H represent in the EOQ formula?
Cost of holding one unit of inventory.
What does the average inventory formula assume?
That inventory levels fluctuate evenly between the minimum and maximum inventory levels.
What are the four types of inventory costs?
Purchase costs, holding costs, ordering costs, and costs of running out of inventory.
What is buffer stock in inventory control?
Buffer stock is equivalent to the minimum inventory level.
How is average inventory calculated?
Average Inventory = Safety Inventory (Buffer Stock) + ½ Reorder Quantity.
What is the calculated EOQ prior to considering discounts?
1,000 units (pounds).
How do you calculate the cost price from the selling price with a mark-up?
Cost Price = Selling Price / (1 + Mark-up Percentage).
What are the savings if EOQ is adopted?
Savings = 803,200 = $16,928.
What does EBQ stand for?
Economic Batch Quantity.
How much is debited to Production Overheads (Indirect) in the journal entry?
$12,000,000.
What is the Reorder Level (ROL) for part ABCD?
10,000 units.
What is the demand frequency for the raw material at XJL Limited?
Every three months.
What is the next step after calculating EOQ prior to discounts?
Determine the optimal order quantity considering quantity discounts.
What is the safety stock for part ABCD?
4,000 units.
What does D represent in the EBQ formula?
Annual demand.
What is the closing inventory used in AVCO calculation?
$11,573.
What is the average cost per unit after the transactions on May 18?
$24.11.
What is the annual demand in the given calculation?
25,000 units.
What was the stock after the transaction on May 7?
400 units at 24.
What was the stock composition after the transaction on May 25?
480 units at $20.
What is the first document required for ordering materials?
Purchase requisition.
How many units were received on May 25?
360 units.
What does the EOQ formula represent?
The Economic Order Quantity model for inventory management.
What do inventory control levels determine?
'When to order' and 'how many to order'.
What does LIFO stand for in inventory valuation?
Last In, First Out.
What is the formula for calculating Selling Price (SP) using Cost Price (CP) and markup percentage?
SP = CP + %CP.
If SP is 450 and the markup percentage is 20%, what is the Cost Price (CP)?
CP = 375.
How do you calculate CP when given SP and a markup percentage?
CP = SP / (1 + markup percentage).
What is the Selling Price (SP) if CP is 360 and the markup percentage is 20%?
SP = 450.
Where does the average cost fall in relation to FIFO and LIFO?
It falls in between FIFO and LIFO.
What is the average annual usage of the component?
4,000 units.
What values are used in the EOQ calculation?
Co = 100, D = 52,000, Ch = 0.65.
When is the closing inventory calculated in relation to the perpetual inventory system?
In monthly and annual accounts.
How many weeks is the factory open per year?
50 weeks.
What is the total amount credited to the Material control account?
$20,000,000.
How is safety stock calculated?
Buffer stock = ROL - [average usage x average lead].
How does LIFO differ from FIFO in terms of CGS during inflation?
Under LIFO, CGS is higher because higher priced items are sold first.
Why is FIFO considered easy to understand?
Because it is straightforward to explain to managers.
What is the annual demand for components at Deans Manufacturing Limited?
52,000 components.
What is the annual holding cost percentage of the unit cost?
20%.
What is the total cost at the EBQ ignoring purchase cost?
Total Cost = (Setup Cost * (Demand / EBQ)) + (Holding Cost * (EBQ / 2)).
What is the formula for calculating Economic Order Quantity (EOQ)?
EOQ = √(2CoD) / Ch
How is the cost of goods issued calculated under AVCO?
Using a weighted average price for all units in inventory.
What is the minimum inventory level?
The lowest inventory balance that should be maintained to avoid a stockout.
What is the maximum level in inventory control?
The upper limit of stock that should not be exceeded.
How is the minimum inventory level calculated?
Minimum Level = Reorder level – (Average usage x Average lead time).
What are the classifications of inventory?
Raw materials, work in progress, finished goods on hand, spare parts, or consumables.
What does the maximum level act as for management?
A warning level that inventories are approaching a potentially wasteful level.
What will the focus be on for the purposes of this unit?
The inventory of materials.
What document is issued to confirm the purchase of materials?
Purchase order.
What does an inventory count (stock take) involve?
Counting the physical inventory on hand and checking it against the inventory records.
What does EOQ stand for?
Economic Order Quantity.
What is the method used to calculate closing inventory and cost of sales in FIFO?
First-In, First-Out method.
What are the two methods of conducting an inventory count?
Continuous or periodic basis.
What is the purpose of calculating EOQ?
To minimize inventory costs when there is no discount.
What is the method used to calculate closing inventory and cost of sales in LIFO?
Last-In, First-Out method.
What is the purpose of comparing physical inventory to inventory records?
To check for discrepancies.
Why is documentation important in material movement?
To ensure accurate tracking and accountability.
What is the method used to calculate closing inventory and cost of sales in AVCO?
Average Cost method.
What are the two types of costs balanced in EOQ?
Ordering costs (C o) and holding costs (C h).
How many units were issued on May 7?
400 units.
What was the unit cost of parts received on May 18?
$28.
What is one reason for inventory control related to holding costs?
Holding costs may be expensive.
How can running out of raw materials affect production?
Production will be disrupted.
What are the three critical inventory control levels?
Reorder level, minimum level, and maximum level.
What is periodic stocktaking?
A process where all inventory items are physically counted and valued at a set point in time, usually at the end of an accounting period.
How is the maximum inventory level calculated?
Max Level = ROL + EOQ - (minimum usage x minimum lead).
What issue can arise from unused inventory with a short shelf life?
It may incur unnecessary expenses.
What does an efficient material control system help maintain?
An even flow of production.
Why is it important to ensure quality inputs in inventory control?
To maintain a good reputation with customers.
What is the purpose of calculating inventory control levels?
To maintain inventories at the optimum level that minimizes costs.
What does an efficient material control system aim to avoid?
Excessive investment in inventories.
What are the values used in the EOQ calculation in this example?
Co = 180, D = 30,000, Ch = 1.20
What does D represent in the EOQ formula?
Demand for one year.
What is the cost per order (Co) calculated in the example?
$30 per order.
How much of the issued materials is allocated to Manufacturing Overhead?
$12,000,000.
What is the Minimum Level when ROL is 4,200 units, average usage is 250 units, and average lead is 10 days?
1,700 units.
What is a perpetual inventory system?
An inventory recording system that updates records for each receipt and issue of inventory as it occurs.
What account is credited when materials are issued from the store?
Material control account.
What does FIFO stand for in inventory valuation?
First In, First Out.
How much is debited to WIP (Direct) in the journal entry?
$8,000,000.
What is the annual demand for barrels at Crystal Supplies Limited?
30,000 barrels.
What is the cost per setup for ACME Ltd.?
$320.
What must be determined after each inventory transaction?
The make-up of your inventory balance.
How do you calculate the Economic Batch Quantity (EBQ)?
EBQ = sqrt((2 * Demand * Setup Cost) / Holding Cost).
How many orders of 100,000 units incur less ordering costs compared to 50,000 units?
5 orders of 100,000 units.
What is the formula to calculate the minimum level?
Minimum Level = (Average Usage x Minimum Lead Time) + Safety Stock.
How do you calculate the total carrying costs (Ch) at EBQ?
Ch = EBQ/2 x Ch(1 - D/R) = 1,000/2 x [640.
What is the total cost at EBQ, ignoring purchase cost?
Total cost = Total ordering cost + Total carrying costs = 640 = $1,280.
What is the formula to calculate the average inventory?
Average Inventory = (Minimum Level + Maximum Level) / 2.
What is the savings if the EOQ model is adopted?
To be calculated by comparing total costs at EOQ and current policy.
What is the calculation for ordering cost (Co) at 5,000 units?
Co = D/Q x Co = 30,000/5,000 x 180 = $1,080.
How do quantity discounts affect the optimal order quantity?
They may lower the effective cost per unit, influencing the order quantity.
What is the carrying cost (Ch) at EOQ (1,000 units) with $0 discount?
$1,500.
What is the total cost at the current policy (500 units) with $0 discount?
$3,003,750.
What is the carrying cost (Ch) at 5,000 units with a $10 discount?
$7,500.
What formula is used to calculate average inventory?
Average inventory = minimum level + ½ EOQ.
What is the main purpose of stocktaking?
To ensure accurate inventory balance by physically counting and valuing items.
What percentage of the materials issued can be directly traced to the production process?
40%.
What should be considered to determine if the entity will divert from the current EOQ?
Discounts.
What is the fourth function of an inventory control system?
The storage of goods.
What is the fifth function of an inventory control system?
The issue of inventory.
What is a pricing error in inventory management?
A correctly counted and classified item priced at 56 per 100.
What is a recording error in inventory?
An omission of the entry of a goods received note.
What is the EOQ prior to considering discounts?
4,000 units.
What percentage of the materials issued is directly related to the production process?
100%.
How does FIFO impact Cost of Goods Sold (CGS) during inflationary conditions?
CGS is lower because earlier and lower priced items are sold first.
What is the formula for purchase cost in the EOQ model?
Purchase cost = D x UC.
What is the cost price if a margin of 20% is applied?
$360.
What does FIFO stand for in inventory valuation?
First In, First Out.
Why is adequate record-keeping important for accounting?
It provides necessary records for accounting purposes.
What is the average cost per unit after the transactions on May 4?
$21.71.
How do you calculate the total ordering cost (Co) at EBQ?
Co = D/EBQ x Co = 2,000/1,000 x 640.
What happens to holding costs (C H) as the reorder quantity (ROQ) increases?
C H increases.
What is the discount percentage for orders of 7,500 barrels or above?
2.5%.
What is the annual holding cost for one component?
$0.65.
What is the formula for calculating the weighted average price in AVCO?
Total cost divided by total number of units.
How long does it take for the purchasing manager to place an order?
One and a half hours.
What was the total value of stock after the transaction on May 25?
$9,600.
What is the holding cost (Ch) at 5,000 units?
$3,000.
What is the holding cost (Ch) at 7,500 units?
$4,500.
What is the purchase cost (PC) at 2,000 units with a $5 discount?
$2,750,000.
What is continuous stocktaking?
Counting and valuing selected items at different times on a rotating basis.
What is the calculated EOQ ignoring discounts?
3,000 units.
What is the journal entry to record the issue of materials from stores?
Debit Work in Process Inventory 12,000,000; Credit Raw Materials Inventory $20,000,000.
What does AVCO stand for in inventory valuation?
Average Cost.
What are deflationary conditions characterized by?
Falling prices.
What is the sixth function of an inventory control system?
Maintenance of inventory at the most appropriate level.
What is the relationship between markup and margin?
Markup is a percentage of CP, while margin is a percentage of SP.
What does a perpetual inventory system provide?
A continuous record of the balance of each item of inventory.
What is the formula for calculating cost of sales?
Opening inventory + Purchases - Closing inventory.
What is the total amount of purchases made?
$39,360.
How does proper record-keeping affect ordering?
It prevents duplication of ordering.
What does 'Ch' represent in the EOQ formula?
Holding cost per unit.
What values are used in the EBQ calculation in this example?
Co = 1.60, R = 10,000.
What does the EOQ model assume about replenishment?
Replenishment is made instantaneously, with the whole batch delivered at once.
What is the impact of LIFO on profits during inflationary conditions?
Profits are lower due to higher CGS.
What is a disadvantage of using FIFO?
It can be complex to operate due to the need to identify each batch of material separately.
How does LIFO determine the cost of goods issued?
Based on the cost of the last delivery.
What happens to ordering costs (C O) as the reorder quantity (ROQ) increases?
C O falls.
What happens to inventory issue prices in a period of high inflation under FIFO?
They will lag behind current market value.
What happens to ordering costs (C O) as the reorder quantity (ROQ) decreases?
C O increases.
What is the average inventory for the buffer rubber?
Average Inventory = (1,500 units + 7,500 units) / 2 = 4,500 units.
How is the order cost (Co) calculated?
Co = D/Q x (Co) = 25,000/500 x (32) = $1,600.
What discount is available for orders of 8,000 components or more?
3% discount.
What happens when the assumption of a known, constant purchase price is violated in EOQ?
An alternate approach is required.
What was the total value of raw materials issued by Sandy Bay Sweets Limited?
$20,000,000.
What is the reorder level in inventory control?
The level at which stock should be replenished.
What factors determine the reorder level?
The maximum rate of consumption and the maximum lead time.
What is the holding cost per unit (Ch) in the example?
$3 per unit.
What does maximum rate of consumption refer to?
The highest amount of stock used over a specific period.
What does maximum lead time refer to?
The longest time it takes to receive stock after placing an order.
What types of records are used in a perpetual inventory system?
Bin cards and stores ledger accounts.
If SP is $400 with a margin of 25%, what is the Cost Price (CP)?
CP = $300.
Why is it important to control and check inventory after purchase?
To manage costs and ensure availability.
What are holding costs in inventory management?
Costs associated with storing unsold goods.
What are ordering costs in inventory management?
Costs incurred when placing orders for inventory.
When is EBQ used instead of EOQ?
When producing rather than purchasing and when resupply is gradual.
What percentage of the material is directly related to the production process?
40%.
What is the production rate of components at ACME Ltd.?
200 units per week.
What is the cost of placing each order for the raw material?
$32.
What does AVCO stand for in inventory valuation?
Average Cost Method.
What was the stock after the transaction on May 7?
800 units at 24.
What happens to the unit valuation of inventory under AVCO?
It remains the same until a new delivery is received.
What is the EOQ prior to considering quantity discounts?
Calculated using the EOQ formula.
What is the price per pound of flour for orders between 0 and 1999 pounds?
$60.
What is the ordering cost (Co) at 5,000 units with a $10 discount?
$300.
What is the formula for Total Cost in EOQ with discounts?
Total Cost = (D/Q x Co) + (Q/2 x Ch) + (D x Unit Price).
What should be prepared to analyze total cost at different order quantities?
A table showing total cost at alternate values of Q.
What should be done if discrepancies occur after a stock take?
They should be investigated and corrective actions taken.
What is one reason for discrepancies in inventory?
Quantity errors, such as miscounts during the stock take.
What is the formula to calculate Selling Price (SP) using Cost Price (CP) and Mark-Up?
SP = CP + %CP
How do price movements affect FIFO and LIFO?
Conditions are opposite under FIFO compared to LIFO.
How does AVCO pricing respond to gradual inflation?
Prices tend to lag a little behind current market values when there is gradual inflation.
How much is the total amount recorded for materials issued?
$20,000,000.
How is the balance on the stores ledger account used?
It represents the inventory on hand and is used in the calculation of closing inventory.
What is one benefit of keeping proper records for ordering and receiving materials?
Ensures enough inventory is held.
What does 'D' represent in the EOQ formula?
Annual demand.
What is the production setup cost?
$600.
What are the ordering and transport costs per order?
$180.
What is the AVCO cost of sales?
$27,787.
What is the reorder level for the buffer rubber?
Reorder Level = 250 units/day x 14 days = 3,500 units.
How many units were issued on May 7?
400 units.
What is the discount percentage for orders of at least 5,000 barrels?
2%.
What is the formula for calculating EOQ?
EOQ = sqrt((2DS)/H), where D is annual demand, S is ordering cost per order, and H is holding cost per unit per year.
What is the maximum level for the buffer rubber?
Maximum Level = 3,500 units + 5,000 units - (250 units/day x 6 days) = 7,500 units.
What is the total cost at 4,500 units with a 1% discount?
$234,325.
What is the purchase cost (PC) at 5,000 units?
$352,800.
What is the purchase cost (PC) at EOQ (1,000 units) with $0 discount?
$3,000,000.
What is the ordering cost (Co) at the current policy (500 units) with $0 discount?
$3,000.
What is the ordering cost (Co) at 2,000 units with a $5 discount?
$750.
What does C_0 represent in the EOQ formula?
Cost of placing one order.
What are the three inventory control levels?
Minimum, maximum, and reorder level.
What is an advantage of the AVCO method regarding price fluctuations?
Fluctuations in prices are smoothed out, making it easier to use the data for decision making.
How is the order cost (Co) calculated?
Co = D/Q x (Co) = 25,000/6,250 x (32) = $128.
What is the carrying cost (Ch) for the given data?
Ch = Q/2 x (Ch) = 6,250/2 x 6.40 = $20,000.
How is the purchase cost (PC) calculated?
PC = D x unit cost = 25,000 x 800,000.
What is a systems error related to inventory discrepancies?
Inadequate recording of returns to stores.
What is the formula for annual holding cost in the EOQ model?
Annual holding cost = Q/2 x Ch (assuming safety stock is zero).
What is a key principle regarding inventory transactions?
You cannot issue/sell what you do not have.
What is the purpose of the EBQ?
To determine the number of items that should be produced in a batch.
What is the formula for calculating Economic Batch Quantity (EBQ)?
EBQ = √[2CoD/Ch(1 - D/R)]
What is the holding cost per unit for ACME Ltd.?
$1.60.
What is the formula to calculate the reorder level?
Reorder Level = (Average Usage x Maximum Lead Time)
What complicates decision-making when using LIFO?
Variations in prices can make decision-making difficult.
What is the average usage for part ABCD?
300 units per day.
What does C O represent in the EBQ formula?
The set up cost per batch.
What is the formula to calculate the maximum level?
Maximum Level = Reorder Level + EOQ - (Average Usage x Minimum Lead Time).
How much flour is required for each sandwich?
0.01 pound of flour.
What was the initial stock on May 1?
800 units at $20 each.
How many units were issued on May 11?
200 units at $24.
What is the carrying cost (Ch) at EOQ (4,000 units)?
$1,300.
What is the price per pound of flour for orders of 5000 pounds and above?
$50.
What is the purchase cost (PC) at 8,000 units with a 2% discount?
$229,980.
What is the purchase cost (PC) at EOQ (3,000 units)?
$360,000.
What is the total cost at 2,000 units with a $5 discount?
$2,753,750.
What is the purchase cost (PC) at 5,000 units with a $10 discount?
$2,500,000.
What is the second function of an inventory control system?
The purchase of inventory.
What is the formula for calculating the Re-Order Level (ROL)?
ROL = maximum usage x maximum lead.
What is the journal entry to record the issue of materials from stores?
Debit: Work in Process Inventory 20,000,000.
What date is relevant for the journal entry of Sandy Bay Sweets Limited?
December 31, 2013.
If SP is $400 with a mark-up of 25%, what is the Cost Price (CP)?
CP = $320.
What is the formula to calculate Selling Price (SP) using Cost Price (CP) and Margin?
SP = CP + %SP
Which inventory cost is usually one of the largest faced by an organization?
Purchase costs.
What is a key assumption regarding stockholding cost in the EOQ model?
The per unit stockholding cost is known and constant.
What is the average usage of the component produced by ACME Ltd. per annum?
2,000 units.
What is the effect of FIFO on profits during rising prices?
Profits are higher due to lower CGS.
What are the costs of running out of inventory?
Costs associated with lost sales and customer dissatisfaction.
What is one advantage of the FIFO inventory method?
It is a logical pricing method that likely represents what is physically happening.
What does Q represent in the EBQ formula?
The amount produced in each batch.
What is the average stock assumption in the EOQ model?
Average stock is Q/2.
What is the total value of inventory after the transactions on May 11?
$11,289.
How does FIFO inventory valuation relate to replacement cost?
It can be near to a valuation based on replacement cost.
What was the total value of stock after the transaction on May 18?
$19,360.
What is the total cost calculated in the example?
$803,200.
What is the conclusion regarding order quantity?
Order in batches of 7,500 as it yields the lowest total cost.
How is the optimum reorder quantity (ROQ) determined?
By selecting the value of Q at which total cost is at a minimum.
How much of the issued materials is allocated to Work in Process Inventory?
$8,000,000.
How does AVCO simplify administration compared to FIFO?
It is easier to administer than FIFO because there is no need to identify each batch separately.
What is the selling price of a gel ink pen at Xcel Company?
$450.
What is the mark-up percentage on the gel ink pens?
20%.
What is the total cost at the current policy?
Total cost = 20,000 + 820,128.
What is the production rate for the components?
400 units per week.
How is the annual order cost calculated in the EOQ model?
Annual order cost = D/Q x Co.
How do you calculate the cost price from the selling price with a margin?
Cost Price = Selling Price * (1 - Margin Percentage).
How does LIFO benefit managers in decision-making?
Managers are continually aware of recent costs, as the costs charged are current costs.
What is assumed about the price per unit in the EOQ model?
The price per unit is known and constant, although quantity discounts may be offered.
What does R represent in the EBQ formula?
Annual replenishment rate.
How does FIFO determine the cost of goods issued?
Based on the cost of the earliest delivery.
What is the EOQ formula?
EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost).
What can violate the average stock assumption in the EOQ model?
If a constant amount is not used per day, or if seasonal and cyclical factors produce uneven usage.
What was the initial stock on May 1?
800 units at $20 each.
What are the ordering costs per order?
$100.
Should you divert from the EOQ if discounts are taken into account?
It depends on the total cost analysis including discounts.
What is the total value of inventory after the transactions on May 25?
$11,573.
What is the hourly rate for the purchasing manager?
$20 per hour.
How many units were issued on May 25 and at what price?
360 units at $24.
What is the price per pound of flour for orders between 2000 and 4999 pounds?
$55.
What is the purchase cost (PC) at 7,500 units?
$351,000.
What is the maximum inventory level?
The amount of inventory on hand immediately after an order is received (safety inventory + reorder quantity).
How is the Minimum Level calculated?
Min Level = ROL – (average usage x average lead).
What must be done once inventory is obtained?
It has to be carefully controlled and checked.
What is the average usage multiplied by average lead in the Minimum Level calculation?
2,500 units.
What are the main components of inventory costs?
Purchase costs, holding costs, ordering costs, and costs of running out of inventory.
What does AVCO stand for in inventory valuation?
Average Cost Method.
What is the margin percentage applied to calculate the cost price?
20%.
What is a disadvantage of the LIFO inventory method?
The method can be cumbersome to operate due to several batches being only partially used.
What is assumed about the rates of demand in the EOQ model?
The rates of demand are known.
What is the LIFO cost of sales?
$29,760.
What is the annual holding cost per barrel?
$1.20.
How many orders of 50,000 units incur more ordering costs compared to 100,000 units?
10 orders of 50,000 units.
What is the minimum level for the buffer rubber if safety stock is not considered?
Minimum Level = 250 units/day x 6 days = 1,500 units.
What is the cost of each component?
$4.50.
How many units were received on May 4 and at what price?
600 units at $24 each.
What is the carrying cost (Ch) at 4,500 units?
$1,625.
What was the total value of stock after the transaction on May 18?
$21,440.
What is the total cost at EOQ (1,000 units) with $0 discount?
$3,003,000.
How do you calculate the Economic Batch Quantity (EBQ)?
EBQ = sqrt((2 * Demand * Setup Cost) / Holding Cost).
What is the average lead time for part ABCD?
20 days.
What happens to holding costs (C H) as the reorder quantity (ROQ) decreases?
C H falls.
What is the cost per pound of flour?
$60 per pound.
How is the carrying cost (Ch) calculated?
Ch = 20% x 6.40.
What discount is available for orders of at least 5,000 components?
1% discount.
What is the purchase cost (PC) in the total cost calculation?
PC = D x unit cost = 25,000 x 800,000.
What is the total cost at EOQ (3,000 units)?
$363,600.
What is the ordering cost (Co) at EOQ (3,000 units)?
$1,800.
What is the holding cost (Ch) at EOQ (3,000 units)?
$1,800.
What is the ordering cost (Co) at 7,500 units?
$720.
How do you calculate the total cost at EOQ?
Total Cost = Purchase Cost + Ordering Cost + Holding Cost.
How many units were received on May 4 and at what price?
600 units at $24 each.
What is the calculated EOQ based on the provided data?
500 units.
What is the total cost at 5,000 units with a 2% discount?
$356,880.
What was the total value of stock after the transaction on May 25?
$12,800.
What is the formula for calculating EOQ?
EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost).
How many units were issued on May 11 and at what price?
400 units at 24.
What is the carrying cost (Ch) for the EOQ?
Ch = Q/2 x (Ch) = 500/2 x 6.40 = $1,600.
What is the total cost at 8,000 units with a 2% discount?
$230,230.
What is the carrying cost (Ch) at 8,000 units?
$2,600.
What is the conclusion regarding order quantity based on total costs?
Order in batches of 8,000 as it yields the lowest total cost.
What is the carrying cost (Ch) at the current policy (500 units) with $0 discount?
$750.
What is the average annual holding cost of inventory per unit?
$3 per unit.
What is the purchase cost (PC) at EOQ (4,000 units)?
$234,000.
What is the carrying cost (Ch) at 2,000 units with a $5 discount?
$3,000.
What is the ordering cost (Co) at EOQ (1,000 units) with $0 discount?
$1,500.
What is the total cost at 7,500 units with a 2.5% discount?
$356,220.
What is the total cost at 5,000 units with a $10 discount?
$2,507,800.
