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Ksju [112]
3 years ago
5

Consider a university that purchases replacement chairs for its classrooms. The purchasing manager knows that the annual demand

for replacement chairs is 500. The pricing schedule is as follows: Use the following Excel solution to this quantity discount problem with constant carrying cost. Carrying cost = $ 15 Ordering cost = $ 200 Annual Demand = 500
Quantity Price Q Discount Q Total Cost
100 $130 115.47 115.47 $ 66,732.05
200 $122 115.47 200.00 $ 63,000.00
500 $120 115.47 500.00 $ 63,950.00
What is the inventory ordering cost using the economic order quantity?
A. $1,000
B. $866
C. $500
D. $200
Business
1 answer:
Ierofanga [76]3 years ago
8 0

Answer:

b. $866

Explanation:

Annual demand from the question = D = $500

the ordering cost = S = $200

then the cost of carrying H = $15

we have to calculate the <em><u>economic order quantity</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>sqr</u></em><em><u>(</u></em><em><u>2</u></em><em><u>*</u></em><em><u>D</u></em><em><u>*</u></em><em><u>S</u></em><em><u>)</u></em><em><u>/</u></em><em><u>H</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>sqr</u></em><em><u>(</u></em><em><u>2</u></em><em><u> </u></em><em><u>x</u></em><em><u> </u></em><em><u>5</u></em><em><u>0</u></em><em><u>0</u></em><em><u> </u></em><em><u>x</u></em><em><u> </u></em><em><u>2</u></em><em><u>0</u></em><em><u>0</u></em><em><u>)</u></em><em><u>/</u></em><em><u>2</u></em><em><u>5</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>sqr</u></em><em><u>(</u></em><em><u>1</u></em><em><u>3</u></em><em><u>3</u></em><em><u>3</u></em><em><u>3</u></em><em><u>.</u></em><em><u>3</u></em><em><u>3</u></em><em><u>3</u></em><em><u>3</u></em><em><u>)</u></em>

<em><u>this</u></em><em><u> </u></em><em><u>equals</u></em><em><u> </u></em><em><u>1</u></em><em><u>1</u></em><em><u>5</u></em><em><u>.</u></em><em><u>4</u></em><em><u>6</u></em><em><u>9</u></em>

<em><u>whi</u></em><em><u>ch</u></em><em><u> </u></em><em><u>is</u></em><em><u> </u></em><em><u>app</u></em><em><u>roximately</u></em><em><u> </u></em><em><u>1</u></em><em><u>1</u></em><em><u>5</u></em><em><u>.</u></em><em><u>5</u></em>

<em><u>next</u></em><em><u> </u></em><em><u>we</u></em><em><u> </u></em><em><u>have</u></em><em><u> </u></em><em><u>to</u></em><em><u> </u></em><em><u>calc</u></em><em><u>ulate</u></em><em><u> </u></em><em><u>inven</u></em><em><u>tory</u></em><em><u> </u></em><em><u>orderi</u></em><em><u>ng</u></em><em><u> </u></em><em><u>cost</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>(</u></em><em><u>D</u></em><em><u> </u></em><em><u>*</u></em><em><u> </u></em><em><u>S</u></em><em><u>)</u></em><em><u>/</u></em><em><u>EOQ</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>2</u></em><em><u>0</u></em><em><u>0</u></em><em><u> </u></em><em><u>*</u></em><em><u>5</u></em><em><u>0</u></em><em><u>0</u></em><em><u>/</u></em><em><u>1</u></em><em><u>1</u></em><em><u>5</u></em><em><u>.</u></em><em><u>5</u></em>

<em><u>=</u></em><em><u> </u></em><em><u>8</u></em><em><u>6</u></em><em><u>5</u></em><em><u>.</u></em><em><u>5</u></em>

<em><u>When</u></em><em><u> </u></em><em><u>approximated</u></em><em><u> </u></em><em><u>becomes</u></em><em><u> </u></em><em><u>$</u></em><em><u>8</u></em><em><u>6</u></em><em><u>6</u></em>

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Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         2,328

a. Delivery Service Revenue      17,600

c. Prepaid Expenses                                       3,728

c. Rent Expenses                                           10,136

d. Repairs Expenses                                       3,864

e. Accounts Receivable            24,285

f. Long-term Note Payable                               350

g. Common stock                              2

g. APIC                                              14

h. Salaries                                                     15,276

i. Fuel Expenses                                            8,564

j. Accounts Payable                                          784

Balance                                                          1,527

Prepaid expenses

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         329

c. Cash                                       3,728

Balance                                                         4,057

Spare parts, supplies, and fuel

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         437

Accounts Receivables

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         4,581

a. Delivery Service Revenue     21,704

e. Cash                                                        24,285

Balance                                                         2,000

Other current assets

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         610

Property and equipment (net)

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         15,543

b. Long-term Note Payable           3,434

Balance                                                       18,977

Other noncurrent assets

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                         3,557

Accounts payable

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          1,702

j. Cash                                             784

Balance                                           918

Accrued expenses payable

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          1,894

Other current liabilities

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          1,286

Long-term notes payable

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          1,667

b. Property and Equipment                          3,434

f. Cash                                            350

Balance                                        4,751

Other noncurrent liabilities

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          5,616

Common stock ($0.10 par value)

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          32

g. Cash                                                             2

Balance                                           34

Additional Paid-in Capital

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          2,472

g. Cash                                                                14    

Balance                                           2,486

Retained earnings

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Balance                                                          12,716

Delivery Service Revenue

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

a. Accounts receivable                                 21,704              

a. Cash                                                          17,600

Balance                                     39,304

Rent Expense

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

c. Cash                                       10,136

Repairs Expense

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

d. Cash                                        3,864

Salaries Expense

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

h. Cash                                      15,276

Fuel Expense

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

i. Cash                                        8,564

                                               

3. Income Statement for the year ended May 31, 2015:

Delivery Service Revenue                         39,304

Rent Expense                            10,136

Repair Expense                         3,864

Salaries Expense                     15,276

Fuel Expense                            8,564       37,840

Net Income                                                   1,464

Explanation:

a) Account Balances on May 31, 2014:

Trial Balance as of May 31, 2014:

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Cash                                               2,328

Prepaid expenses                            329

Spare parts, supplies, and fuel       437

Receivables                                   4,581

Other current assets                       610

Property and equipment (net)   15,543

Other noncurrent assets            3,557

Accounts payable                                          1,702

Accrued expenses payable                          1,894

Other current liabilities                                 1,286

Long-term notes payable                             1,667

Other noncurrent liabilities                          5,616

Common stock ($0.10 par value)                     32

Additional Paid-in Capital                            2,472

Retained earnings                                       12,716

Totals                                       $27,385  $27,385      

Other transactions for year ending May 31, 2015:

a. Delivery Service Revenue $21,704 Account Receivable $21,704

   Delivery Service Revenue $17,600 Cash $17,600

b. Equipment $3,434 Long-term Note Payable $3,434

c. Rent Expense $10,136; Prepaid (Rent) Expense $3,720 Cash $13,864

d. Repair Expenses $3,864 Cash $3,864

e. Cash $24,285 Accounts Receivable $24,285

f. Long-term Note Payable $350 Cash $350

g. Cash $16 Common Stock $2 APIC $14

h. Salaries Expense $15,276 Cash $15,276

i. Fuelling Expense $8,564 Cash $8,564

j. Accounts Payable $784  Cash $784

k. N/A

Trial Balance as of May 31, 2015:

Account Titles                              Debit        Credit

                                                  ('millions)  ('millions)

Cash                                                1,527

Prepaid expenses                         4,057

Spare parts, supplies, and fuel       437

Receivables                                  2,000

Other current assets                       610

Property and equipment (net)   18,977

Other noncurrent assets            3,557

Accounts payable                                            918

Accrued expenses payable                          1,894

Other current liabilities                                 1,286

Long-term notes payable                             4,751

Other noncurrent liabilities                          5,616

Common stock ($0.10 par value)                     34

Additional Paid-in Capital                            2,486

Retained earnings                                       12,716

Delivery Service Revenue                         39,304

Rent Expense                            10,136

Repair Expense                         3,864

Salaries Expense                     15,276

Fuel Expense                            8,564

Totals                                    $69,005   $69,005

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