JT Maxwell Company Limited is a large department store based in Montego Bay, which sells wall...

 

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JT Maxwell Company Limited is a large department store based in Montego Bay, which sells wall fans for $3,500 each. Over the years, the company has adopted a mark-up policy of 40% on wall fans and its quarterly demand of wall fans is sixty (60). In recent times, management has raised concerns about the total cost of purchasing, ordering and holding the wall fans in storage. JT Maxwell's current policy is to purchase wall fans from its supplier Windy Breeze Limited, on a quarterly basis. A single employee is designated to place each order. The employee is paid at a rate of $200 per hour and each order takes approximately three (3) hours. It costs JT Maxwell $300 to store each one of these fans per year. On March 12, 2017, after some amount of negotiation, the financial controller of JT Maxwell Company Limited was advised by the Finance Manager of Windy Breeze Limited that a 5% discount will be given if JT Maxwell decides to double its current lot size. He also claimed a further 5% discount will be given if JT Maxwell triples its current lot size. Required: a. Calculate the Economic Order Quantity. b. Calculate the total cost based on the Economic Order Quantity. c. Calculate the total cost for each individual alternate order quantities, including the current policy. [12 marks] [ 5 marks] [4 marks] d. Which order quantity is considered the optimal order quantity and why? [2 marks] e. While the EOQ model can be useful for determining optimal order size, the assumptions [4 marks] on which it rests may not be realistic. List four of these assumptions. JT Maxwell Company Limited is a large department store based in Montego Bay, which sells wall fans for $3,500 each. Over the years, the company has adopted a mark-up policy of 40% on wall fans and its quarterly demand of wall fans is sixty (60). In recent times, management has raised concerns about the total cost of purchasing, ordering and holding the wall fans in storage. JT Maxwell's current policy is to purchase wall fans from its supplier Windy Breeze Limited, on a quarterly basis. A single employee is designated to place each order. The employee is paid at a rate of $200 per hour and each order takes approximately three (3) hours. It costs JT Maxwell $300 to store each one of these fans per year. On March 12, 2017, after some amount of negotiation, the financial controller of JT Maxwell Company Limited was advised by the Finance Manager of Windy Breeze Limited that a 5% discount will be given if JT Maxwell decides to double its current lot size. He also claimed a further 5% discount will be given if JT Maxwell triples its current lot size. Required: a. Calculate the Economic Order Quantity. b. Calculate the total cost based on the Economic Order Quantity. c. Calculate the total cost for each individual alternate order quantities, including the current policy. [12 marks] [ 5 marks] [4 marks] d. Which order quantity is considered the optimal order quantity and why? [2 marks] e. While the EOQ model can be useful for determining optimal order size, the assumptions [4 marks] on which it rests may not be realistic. List four of these assumptions.

Answer rating: 100% (QA)

Answer a Economic Order Quantity 2603001411 1266 b Total cost 1266214 60126630011 295976 c Total cost for current policy 60 units 60214 606030011 3060 Total cost for alternate policy 1 120 units 12021... View the full answer