exercise5.2 - AC2720 Module 5 Costing Methods Exercise 5.2...

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AC2720: Module 5 Costing Methods Exercise 5.2 Inventory Management, Just-in-Time, and Simplified Costing Methods 1 There are three problems in this assessment. You need to complete all the three problems. Problem 1: Economic Order Quantity for Retailer Fan Base (FB) operates a megastore featuring sports merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. The data for 2013 is as follows: Expected annual demand for Galaxy jerseys 10,000 Ordering cost per purchase order $200 Carrying cost per year $7 per jersey Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year consists of the required return on investment of $4.80 (12% * $40 purchase price) plus $2.20 in relevant insurance, handling, and storage costs. The purchasing lead time is 7 days. FB is open 365 days a year. Answer the following questions: 1. Calculate the EOQ.
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