Week 4a Lecture Examples.docx - ACCT3203 Contemporary Managerial Accounting Week 4 Lecture Illustration Examples Chapter 20 Inventory Management JIT

Week 4a Lecture Examples.docx - ACCT3203 Contemporary...

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ACCT3203 Contemporary Managerial Accounting Week 4: Lecture Illustration Examples Chapter 20 Inventory Management, JIT & Simplified Costing Methods Semester TWO 2018 Prepared By Dr Thanes Subraamanniam UWA Business School The University of Western Australia 1
LECTURE ILLUSTRATION EXAMPLE 1Economic 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. Data for 2017 are as follows:Expected annual demand for Galaxy jerseys10,000Ordering cost per purchase order$200Carrying cost per year$7 per jerseyEach 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% x $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.a.Calculate the EOQ.b.Calculate the number of orders that will be placed each year.c.Calculate the reorder point.

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