operations management

posted by .

A company requires 5,000 units of a product in a single year. It costs them $100 per order for expenses such as transportation and communication. If the product is carried in inventory, the carrying cost equals 1% of the price of the product for every month that a single unit of the product is held in inventory. This cost is realized primarily from the costs associated with rental and utility costs for the warehouse that stores the inventory. The product costs $200 per unit, and the company works for a total of 300 days in the year. The company currently orders 500 units in each order for a total of 10 orders in the year, but they feel that this order level is not the most economical. They feel that the total inventory costs (the sum of the ordering and the inventory-carrying costs) can be reduced further if they change the order quantity. They also use the continuous inventory system for the product; they want to evaluate whether this is the right system for the product.
Analyze whether the company can further reduce the total inventory costs. If so, what would you recommend the new order quantity to be, and what would be the annual savings in the total inventory costs with the new order quantity? Then evaluate whether the continuous inventory system is the correct inventory management system for this product.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. accounting

    The accounting records of NuTronics, Inc., include the following information for the year ended December 31, 2011. Dec. 31 Jan. 1 Inventory of materials $ 24,000 $ 20,000 Inventory of work in process 8,000 12,000 Inventory of finished …
  2. Advanced Production

    Montegut Manufacturing produces a product for which the annual demand is 10,000. Production averages 100 per day, while demand is 40 per day. Holding costs are $1.00 per unit per year;set-up costs $200.00. If they wish to produce this …
  3. accounting

    "Harris Company manufactures and sells a single product. A partically completed schedule of the company's total and per unit cost over the relevant range of 30,000 to 50,000 per units produced and sold are: United produced and Sold: …
  4. Business

    Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas’s fastest moving inventory item has a demand of 6000 units per year. The cost of each unit …
  5. accounting

    Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 717 rupees. (Indian currency is denominated in rupees, denoted by Picture.) Selected data for …
  6. Math - Finance

    Product A This product will take 2 years to develop, at a cost of $100,000 in the first year (Yr 0) and $50,000 in the second. Revenue (benefits) in subsequent years is expected to be $100,000 per year. Product B This product will …
  7. finance

    Innovation Company is thinking about marketing a new software product. Upfront cost to market and develop the product are $5 million. The product is expected to generate profits of $1 million per year for 10 years. The company will …
  8. Managerial Accounting, MBA

    A company produces a single product. Variable production costs are $12 per unit and variable selling and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed selling and administrative expenses …
  9. math

    In 2014, Timmers, Inc. (a retail clothing company) sold 102,300 units of its product at an average price of $100.00 per unit. The company reported estimated returns and allowances in 2014 of 1.5 percent of gross revenue. Timmers actually …
  10. math

    Product A This product will take 2 years to develop, at a cost of $100,000 in the first year (Yr 0) and $50,000 in the second. Revenue (benefits) in subsequent years is expected to be $100,000 per year. Product B This product will …

More Similar Questions