EOQ and LEAN ACCOUNTING In-Class Illustration #1 XYZ, Inc. expects to sell 180,000 units of its product
Question:
EOQ and LEAN ACCOUNTING In-Class Illustration #1 XYZ, Inc. expects to sell 180,000 units of its product next year. The cost to purchase a unit is $44.00. The selling price is $80.00 per unit; sales commission is 10%. The clerical cost to place an order totals $15.00. The purchasing manager draws a salary of $60,000.00 per year. Obsolescence insurance costs $5.00 per unit per year for the weighted average number of units on hand. When units are acquired, the transportation fee is $50.00 per shipment, plus $1.00 per unit. The firm’s cost of capital is 12%. Annual depreciation on the warehouse building amounts to $15,000.00. XYZ’s demand for its product is uniform throughout the year and the supplier takes two days to deliver when an order is placed. Required:
Determine the optimal number of units the firm should order each time it places an order.
