Accounting Question Answers

QUESTION 1:

Jaya Mart needs 1000 coffee makers per year. The cost of each coffee maker is RM78. Ordering cost is RM100 per order. Carrying cost is 20% of per unit cost. Lead time is 5 days. Jaya Mart is open 360 days in a year.

1. What is the EOQ level?

EOQ =   √ 2SO / C[pic 1]

              [pic 2]

         =   √ 2 X 1000 X 100 /15.60

         =   113 units

1. How many times per year does the store reorder?

S / Q

= 1000  / 113                              360 / 9

= 9 times                                   = 40 days

The company will place the store reorder at every 40 days.

1. What is the re-order point?

Reorder point  = ( S / time period per year )  X Lead time

                        = ( 1000 / 360 ) X 5

                        = 14 units

1. What is the total annual cost if the EOQ quantity is ordered

Total annual cost = ( Q / 2 X C) + (S / Q X O)

                             = ( 113/2  X  15.60 )  + ( 1000/113  X  100 )

                             = RM 1766.36

QUESTION 2:

Hirajuki Distributors has determined the following inventory information for its operation:

• Annual unit usage is 500,000 units.
• The carrying cost is 10% of the purchase price of the goods.
•  The purchase price is RM 5 per unit.
•  The ordering cost is RM 100 per order.
• The desired safety stock is 5,000 units.
• Delivery time is four weeks. Assume Hirajuki’s operation is 50-week year.

1. What is the EOQ level?

[pic 3]

EOQ =   √ 2SO / C

         =   √ 2 X 500,000  X 100 / 0.50[pic 4]

         = 14,142 units

1. What is the average inventory?

Average inventory = Q / 2 + safety sock

                                = 14,142 / 2  +  5000 unit