The Big Buy Supermarket stocks Munchies Cereal. Demand for Munchies is 4,000 boxes per year (365 days). It costs the store $60 p
1 answer:
Answer:
a. 775 units
b. $670
c. 44 units
Explanation:
a. The computation of the economic order quantity is shown below:
=
=
= 775 units
b. The minimum total annual inventory cost is
= Ordering cost + carrying cost
where,
Ordering cost =
The number of orders would be equal to
= Annual demand ÷ economic order quantity
= 4,000 ÷ 775 units
= 5.61 orders
Ordering cost = Number of orders × ordering cost per order
= 6 orders × $60
= $360
The carrying cost is
The average inventory would equal to
= Economic order quantity ÷ 2
= 775 units ÷ 2
= 387.5 units
The total cost of ordering cost and carrying cost equals to
Carrying cost = average inventory × carrying cost per unit
= 387.5 units × $0.80
= $310
So, the minimum total annual inventory cost is
= $360 + $310
= $670
The computation of the reorder point is shown below:
= Demand × lead time + safety stock
where, Demand equal to
= Expected demand ÷ total number of days in a year
= 4,000 ÷ 365 days
= 10.95890
So, the reorder point would be
= 10.95890 × 4 + $0
= 44 units
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Answer:
1. FIFO method
A. Cost of Goods sold is $24,330
B. Ending inventory is $6,020
C. Gross profit is $8,390
2. LIFO method
A. Cost of goods sold is $25,800
B. Ending inventory is $4,550
C. Gross profit is $6,920
3. WA method
A. Cost of goods sold is $24,655
B. Ending inventory is $5,695
C. Gross profit $8,065
4. If the business wanted to pay least taxes, they should use LIFO method of inventory costing
Explanation:
1. Using FIFO method of inventory costing, the cost of goods sold is computed as follows:
Jan 05 sale 140 crates
90 @ 65 = 5,850
50 @ 76 = 3,800
Total $9,650
Jan 27 sale 180 crates
80 @ 76 = 6,080
100 @ 86 = 8,600
Total $14,680
Therefore, $9,650 + $14,680 = $24,330
2. Inventory end using FIFO method
Beg 90 crates add total purchases of 300 crates total available crates is 390 less crates sold of 320 makes the inventory end reduce to 70 crates @ 86. Total amount of inventory at hand is 6,020.
3. Gross profit using FIFO method is computed as follows:
Total sales
Jan 05, 140 @ 100 = $14,000
Jan 27, 180 @ 104 = $18,720
Total amount of sales $32,720
Next, let’s deduct the computed cost of goods sold from total sales to arrive the gross profit. $32,720 - $24,330 = $8,390 (answer)
2. LIFO method (last purchases crates will be sold first)
Cost of goods sold:
Jan 05
130 @ 76 = 9,880
10 @ 65 = 650
total $10,530
Jan 27
170 @ 86 = 14,620
10 @ 65 = 650
total 15,270
total cost of goods sold $25,800
B. Ending inventory at hand using LIFO method
Beg inventory of 90 crates plus total purchases of 300 crates. Total available crates is 390 less total crates sold of 320 makes the ending inventory at hand reduce to 70 crates. Units per crates under this method is the oldest inventory per unit. This is because, under this method, all units sold are those purchased recently. So 70 crates x 65 = $4,550
C. Gross profit using LIFO
To compute the gross profit let’s deduct the cost of good sold computed above from the sales we already computed also.
Sales $32,720
less: COGS $25,800
Gross profit is $6,920
3. WEIGHTED AVERAGE method
Using this method, please refer to the attached file for more clear explanation.
4. If the business wants to pay least tax, they should choose the method that has the least per unit cost of ending inventory at hand. Due to least amount of inventory at hand the cost of goods sold is higher which leads to lesser gross profit reported which result to least amount of tax liability.
