Fuego Limited is a table-glass retailer located in Vancouver. The company purchases glasses from Anderson PLC. The
Question:
Fuego Limited is a table-glass retailer located in Vancouver. The company purchases glasses from Anderson PLC. The details of the table glasses are as follows:
The purchase price per glass – $3,000
Cost of an order - $500
The annual cost of carrying a glass - 2% of the purchase price
Monthly Demand - 1,250 Units
The company has been offered a discount of 1% on the price of a table glass if the lot size is 3,000 table glasses at a time.
Required:
i. Calculate the Economic Order Quantity.
ii. Calculate the total inventory cost.
iii. Draw a graph and discuss the behavior of the total inventory holding cost, total ordering cost, and total cost for the given scenario.
iv. Advise whether the quantity discount offer can be accepted (Assume that the inventory carrying cost does not vary according to the discount policy)
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon