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ACCT3203 Contemporary Managerial AccountingWeek 4: Lecture Illustration Examples Chapter 20Inventory Management, JIT & Simplified Costing MethodsSemester TWO 2018Prepared ByDr Thanes SubraamanniamUWA Business SchoolThe University of Western Australia1
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.