Question

In: Finance

2. Suppose Stanley's Office Supply purchases 90,000 boxes of pens every year. Ordering costs are $133.95...

2. Suppose Stanley's Office Supply purchases 90,000 boxes of pens every year. Ordering costs are $133.95 per order and carrying costs are $0.75 per box. Moreover, management has determined that the EOQ is 5,669.92 boxes. Note: The ordering costs and EOQ differ from problem 1. The vendor now offers a quantity discount of $0.05 per box if the company buys pens in order sizes of 10,000 boxes. Determine the before-tax benefit or loss of accepting the quantity discount. (Assume the carrying cost remains at $0.75 per box whether or not the discount is taken.) Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

3. Use the data from problem 2 and a 365 day year. If the lead time for placing an order is 14 days, and Stanley's Office Supply holds a Safety Stock of 75 days Supply of Boxes of Pens, then at what inventory level in Boxes should an order be placed? Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Solutions

Expert Solution

Answer : 12

Calculation of Before tax Benefit or loss of accepting the order :

Number of orders in EOQ = Annual Demand / EOQ quantity

= 90000 / 5669.92

= 15.873239834

Ordering Cost = Number of Orders * Order Cost

= 15.873239834 * 133.95

= 2126.22

Number of orders for discount = Annual Demand / Quantity to be ordered

= 90000 / 10000

= 9

Ordering Cost = Number of Orders * Order Cost

= 9 * 133.95

= 1205.55

Saving in order cost if discount offer Accepted

Saving in Order Cost = 2126.22 - 1205.55

= 920.67

Discount offered = Number of Boxes * Saving Per box

= 90000 * 0.05

= 4500

Therefore Total Saving = 4500 + 920.67 = 5420.67

Answer to 3 . Inventory level at which order to be placed = (Lead Time + Safety stock days) * Average inventory Level

Average Inventory Level = 90000 / 365

= 246.575342465

Inventory level at which order to be placed = (14 days + 75 days) * 246.575342465

= 21945.2054793 or 21945.21 pens

jeff jeffy answered 1 year ago
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