The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. Th
1 answer:
Answer:
The company should order 100 units to minimize total inventory cost.
Explanation:
Given,
Annual Demand, D = 2,000 units
Order cost, S = $20
Purchase cost = $40
Holding cost, H = Purchase cost x percentage of holding cost
Holding cost = $40 × 20%
Holding cost = $8
We know, the company should order the highest number of products with a minimum cost, and for that, the company uses economic order quantity. Hence,
Economic Order Quantity (EOQ) =
EOQ =
EOQ =
EOQ = 100
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Answer:
Margin Of Safety= $275,862
Explanation:
We can calculate the margin of safety easily by the formula given below
Formula: Margin of safety = Budgeted sales - Breakeven sales
As breakeven sales are not given in the data Firstly we need to find out break even sales in order to calculate margin of safety
Breakeven sales=
As you can see in the data fixed cost s given but contribution margin ratio is not
Contribution margin(Sales revenue - All variable cost)= $1,000,000 - ($270,000 + $240,000 + $150,000 + $50,000) = $1,000,000 - $710,000 = $290,000
Sales price per unit = Total sales/Number of units sold
Sales price per unit= $1,000,000/50,000 = $20
Budgeted contribution margin= $290,000/50,000 = $5.80
Contribution margin ratio = Budgeted contribution margin per unit/Sales price per unit
Contribution margin ratio = $5.80/$20 = 29%
Lets put values in breakeven formula to find breakeven sales
Breakeven sales=
Breakeven sales=
Breakeven sales= $724,138
Now we have both budgeted sales and breakeven sales, we can easily calculate e of safety
Margin of safety = $1,000,000- $724,138
Margin of safety = $275,862