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Exam 4 Practice

# Exam 4 Practice - Ch 12 Problem 1 Acme Company uses 40,000...

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Ch. 12 Problem 1 : Acme Company uses 40,000 saw blades each year to assemble circular saws. The cost of placing an order is \$32. The cost of holding one unit of inventory for one year is \$4. a) Compute the economic order quantity. b) How many orders of saw blades will Acme place per year under the EOQ policy? c) Compute the ordering cost for the EOQ. d) Compute the carrying cost for the EOQ. e) Compute the total cost of Acme’s inventory policy. 1

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Ch. 12 Problem 2 : Airedale, Inc. is currently manufacturing Part B24, producing 20,000 units annually. The part is used in the production of several products made by Airedale. The cost per unit for B24 is as follows: Direct materials \$7.00 Direct labor 4.00 Variable overhead 2.50 Fixed overhead 4.50 Total \$18.00 All of the fixed overhead is common fixed overhead. An outside supplier has offered to sell the part to Airedale, Inc. for \$12. There is no alternative use for the facilities currently used to produce the part. a) Should Airedale make or buy B24? b) What is the most Airedale would be willing to pay an outside supplier ( per unit )? c) If Airedale buys the part, will income increase or decrease and by how much in total (not per unit)? d) Now, let’s assume that all of the fixed overhead is avoidable. Should Airedale make or buy B24?
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