Skips Scooters builds motorized hobby scooters. Although they do most of the construction in-house, they purchase motors
Question:
Skip’s Scooters builds motorized hobby scooters. Although they do most of the construction in-house, they purchase motors from a small engine manufacturer. Because the motor is specially made for Skip’s, the ordering process is very detailed. The following information is available to assist managers determine how many motors to order and when to order.
Annual usage....................................................900 motors
Cost to place an order (K).................................$50.00
Cost to carry one unit (H)..................................$25.00
Daily usage...........................................................9 motors
Lead time............................................................10 days
Price per case..................................................$150.00
The supplier has offered a quantity discount option:
Quantity....................................................Price per Motor
1–49 motors.......................................................$150
50–199 motors...................................................$145.50
200–499 motors.................................................$142.50
500–1,099 motors..............................................$139.50
1,100 + motors...................................................$135.00
Required:
A. Calculate the economic order quantity for Skip’s Scooters, current level of production.
B. Evaluate the quantity discounts offered by the supplier.
C. Determine the re-order point.
D. Make a recommendation to Skip’s Scooters’ management about the quantity to order and the re-order point.
E. Would your recommendation change if the cost to place an order for a motor decreased to $40 per order? Would your recommendation change if the cost to place an order decreased to $35 per order but carrying costs increased to $35.00 per motor? What does this tell you about the order size?
Economic Order QuantityEconomic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...
Step by Step Answer:
Cost Management Measuring, Monitoring and Motivating Performance
ISBN: 978-1119185697
3rd Canadian edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook