Financial Management

$2024$ Assignment $1$

QUESTION $5$

$5\mathrm{.}1$ Describe how the First In$,$ First Out $($FIFO$),$ and Weighted Average Methods are applied to assign inventory costs to inventories and cost of sales.

$(9)$

$5\mathrm{.}2$ A commonly used approach to determine the optimal order level is based on the economic ordering quantity $($EOQ$)$ model. EOQ is the optimum quantity that should be ordered that will minimise the total combined ordering and carrying costs.

The equation for the EOQ is:

EOQ$=\sqrt[\phantom{2}]{\frac{2\text{A}\text{n}\text{n}\text{u}\text{a}\text{l}\text{r}\text{e}\text{q}\text{u}\text{i}\text{r}\text{e}\text{m}\text{e}\text{n}\text{t}\text{O}\text{r}\text{d}\text{e}\text{r}cost}{\text{C}\text{a}\text{r}\text{r}\text{y}\text{i}\text{n}\text{g}or\text{h}\text{o}\text{l}\text{d}\text{i}\text{n}\text{g}cost\text{p}\text{e}\text{r}\text{u}\text{n}\text{i}\text{t}}}$

Barrow Manufacturers produces $40$ wheelbarrows per day. The company works $250$ days a year, on average. They buy the wheels completely assembled from an external supplier. The cost of carrying one wheel in stock for the year amounts to R$5$ and the cost of placing an order is $R1,200.$ The lead time to order new stock of the wheels is $14$ days.

Calculate the following costs related to the stock management of the wheels:

$5\mathrm{.}2\mathrm{.}1$ Calculate the EOQ. Round up to the next whole number.

$5\mathrm{.}2\mathrm{.}2$ Calculate the total ordering cost per annum.

$5\mathrm{.}2\mathrm{.}3$ Calculate the carrying cost per annum.

$(5)$

$(5)$

$5\mathrm{.}2\mathrm{.}4$ Calculate the stock reorder level.

$(3)$

$(2)$