Fresco Inc. manufactures sour pops annually which requires 0 . 4 kilograms of raw material. The company
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Question:
Fresco Inc. manufactures sour pops annually which requires kilograms of raw material. The
company produces and sells sour pops annually. The cost to place a single order is $
per hour which takes four hours on average. The annual carrying cost of inventory is per
annum and currently, the company orders twenty times per year.
A major supplier has offered some incentives for bulk purchases and as the junior cost accountant
you were asked to provide your professional opinion on the optimal order size. A discount
would be given if the entity doubles its current lot size. A further would be given if the entity
increased its order by two and a half times the current lot size. The material is currently bought
from its supplier for $ per kilogram.
Required:
a Calculate the Economic Order Quantity EOQ
b Calculate the total cost based on the EOQ.
c Calculate the total cost for each alternate order quantities, including the current policy.
d What is the optimal order quantity and why?
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