Question

Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

      Relevant ordering costs per purchase order               $114.50

      Carrying costs per package per year:

            Relevant insurance, materials handling,

            breakage, etc., per year                                        $ 4.50

11) What is the economic order quantity?

A) 64.08 packages

B) 21.04 packages

C) 37.50 packages

D) 72.03 packages

12) What are the annual relevant ordering costs?

A) $9,057

B) $7,157

C) $8,266

D) $7,121

13) What are the annual relevant carrying costs?

A) $7,122

B) $8,265

C) $9,057

D) $7,157

14) What are the relevant total costs?

A) $14,279

B) $18,114

C)  $16,531

D) $14,278

15) How many deliveries will be made during each time period?

A) 72.19 deliveries

B) 60.11 deliveries

C) 89.23 deliveries

D) 52.18 deliveries

Answer 1

Solution:

Annual Demand of DVDs (A) : 312000 DVDs

Ordering Cost per order (O) : $114.50

Carrying costs per package per year(C) : ($4.50/60)+($25*15%)=$3.825

11) EOQ = √ 2*A*O/C

=√(2*312000*$114.5)/$3.825

=4322DVDs or 72.03 Packages (4322/60)

Answer is : D) 72.03 packages

12) Annual Relevant Ordering Costs

=Annual Demand/EOQ*Ordering Cost Per Order

=5200Packages/72.03Packages*114.5

Answer is : C)$8266

13)Annual Relevant Caarying Cost

=Quantity Ordered/2*Carrying Cost per unit per annum

=(4322DVDs/2)*$3.825

Answer is : B)$8265

14. Total Relevant Cost

=Annual Relevant Ordering Costs+Annual Relevant Carrying Costs

=$8266+$8265

Answer is : C)$16531

15. Number of Delivery made during the Year

=312000/60/72.03

Answer is : A)72.19