A supermarket is open 360 days per year. Daily use of cash register tape averages 500...

A supermarket is open 360 days per year. Daily use of cash register tape averages 500 rolls. The cost of ordering tape is $85, and carrying costs are $4 per roll a year. Lead time is two days.

EOQ
Total annual carrying and ordering cost for EOQ
They currently order 5000 units each time. What is the current total annual carrying and ordering cost?
How much would they save annually in ordering and carrying costs if they change the current order quantity to EOQ?
Using EOQ, what is the number of orders per year and what is the interval between orders?
ROP (reorder point/quantity)

Solutions

Expert Solution

Average daily demand (d) = 500 rolls

Number of days per year = 360

Annual demand (D) = d × number of days per year = 500 × 360 = 180000 rolls

Ordering cost (S) = $85

Carrying cost (H) = $4

Lead time (L) = 2 days

a) Economic order quantity (EOQ) = √(2DS/H)

= √[(2 × 180000 × 85)/4]

= √(30600000/4)

= √7650000

= 2766 rolls

b) Annual ordering cost = (D/EOQ)S = (180000/2766)85 = $5531.45

Annual carrying cost (EOQ/2)H = (2766/2)4 = $5532

Total Annual cost with EOQ = Annual ordering cost + Annual carrying cost = $5531.45 + $5532 = $11063.45

C) If the order quantity (Q) = 5000 units

Annual ordering cost = (D/Q)S = (180000/5000)85 = $3060

Annual carrying cost (Q/2)H = (5000/2)4 = $10000

Total Annual cost with Q = Annual ordering cost + Annual carrying cost = $3060 + $10000 = $13060

d) Annual savings = Total annual cost with Q - Total annual cost with EOQ = $13060-$11063.45 = $1996.55

e) Number of orders per year = D/EOQ = 180000/2766 = 65.08

Time between orders = (EOQ/D) Number of days per year = (2766/180000)360 = 5.53 days

f) Reorder point = d × L = 500 × 2 = 1000 rolls

keosha answered 3 weeks ago

Next > < Previous

Related Solutions

Fresh Market is open 350 days a year. Daily use of cash register tape (daily demand)...

Fresh Market is open 350 days a year. Daily use of cash register tape (daily demand) has a mean of 20 rolls and a standard deviation of 5 rolls. It takes nine days for Fresh Market to receive the order it placed with its register tape supplier. What level of safety stock of the register tape does Fresh Market need to carry, in order to guarantee that the register tape does not run out 95% of the time (the corresponding...

A farmer purchases $500 per day of input supply, 360 days per year. This totals annual...

A farmer purchases $500 per day of input supply, 360 days per year. This totals annual purchases of $180,000. If the farmer takes the early payment discount, he saves 3% of $180,000, or $5,400. Since the farmer always pays each invoice on the tenth day, there will be $5,000 owed in accounts payable at all times. 1) If the farmer pays all invoices on the thirtieth day, the balance in accounts payable is: 2) If the farmer pays all invoices...

At the end of the day, the cash register tape shows $1,200 in cash sales but...

At the end of the day, the cash register tape shows $1,200 in cash sales but the count of cash in the register is $1,260. The proper entry to account for this excess is: Multiple Choice Debit Cash $1,200; credit Sales $1,200. Debit Cash $1,260; credit Sales $1,260. Debit Cash $1,260; credit Sales $1,200; credit Cash Over and Short $60. Debit Cash $1,200; debit Cash Over and Short for $60; credit Sales $1,260. Debit Cash Over and Short $60; credit...

At the end of the day, the cash register tape lists $881.40 as total income from...

At the end of the day, the cash register tape lists $881.40 as total income from services. Cash on hand consists of $18.25 in coins, $433.60 in currency, $100.00 in traveler's checks, and $427.00 in customers' checks. The amount of the Change Fund is $100. Required: Record the entry to record the day's cash revenue. If an amount box does not require an entry, leave it blank. GENERAL JOURNAL PAGE DATE DESCRIPTION DOC. NO. POST. REF. DEBIT CREDIT To record...

The following transactions are from Ohlm Company. (Use 360 days a year.) Year 1 Dec. 16...

The following transactions are from Ohlm Company. (Use 360 days a year.) Year 1 Dec. 16 Accepted a $14,400, 60-day, 9% note in granting Danny Todd a time extension on his past-due account receivable. 31 Made an adjusting entry to record the accrued interest on the Todd note. Year 2 Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16. Mar. 2 Accepted a(n) $7,700, 9%, 90-day note in granting a time extension on the...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable. 31 Made an adjusting entry to record the accrued interest on the Todd note. 2017 Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16. Mar. 2 Accepted a $6,100, 8%, 90-day note dated this day in granting...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16 Accepted a $13,000, 60-day, 9% note dated this day in granting Danny Todd a time extension on his past-due account receivable. 31 Made an adjusting entry to record the accrued interest on the Todd note. 2017 Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16. Mar. 2 Accepted a(n) $6,800, 9%, 90-day note dated this day in granting...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16...

The following selected transactions are from Ohlm Company. (Use 360 days a year.) 2016 Dec. 16 Accepted a $11,900, 60-day, 9% note dated this day in granting Danny Todd a time extension on his past-due account receivable. 31 Made an adjusting entry to record the accrued interest on the Todd note. 2017 Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16. Mar. 2 Accepted a(n) $7,900, 9%, 90-day note dated this day in granting...

Find the cash conversion cycle for XYZ in 2018. If the industry averages are 30 days...

Find the cash conversion cycle for XYZ in 2018. If the industry averages are 30 days for sales to cash, 75 days for inventory to sales, and 30 days for purchase to payment, where is XYZ performing better or worse than the industry? How does the XYZ cash conversion cycle compare to the industry? Should XYZ address any or all of these differences and why? Financial Statements for XYZ Corp. Balance Sheet for Period Ending December 31. Assets 2017 2018...

The ShortHolder bank pays 5.60% p.a., but with daily compounding assume a 360 day year), on...

The ShortHolder bank pays 5.60% p.a., but with daily compounding assume a 360 day year), on a 9 month certificate of deposit . If you deposit $20,000 you would expect to earn how much in interest (rounded to the nearest dollar).

Subjects