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2 Class - Exercise - Question - 1 DR - Hyatt

The document discusses inventory management concepts including economic order quantity (EOQ), reorder point, inventory turns, FIFO and weighted average costing. It provides examples and questions related to calculating EOQ, inventory levels, cost of goods sold, and inventory valuation.

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59 views5 pages

2 Class - Exercise - Question - 1 DR - Hyatt

The document discusses inventory management concepts including economic order quantity (EOQ), reorder point, inventory turns, FIFO and weighted average costing. It provides examples and questions related to calculating EOQ, inventory levels, cost of goods sold, and inventory valuation.

Uploaded by

nurfarhana6789
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Class Exercise

 The system deals with single item.


 The demand rate of D units per time unit is known and constant.
 Quantity discounts are not available.
 The item is produced in lots or purchasers are made in orders. The ordering cost is constant.
 Shortages are not allowed. Lead – Time is known and is constant.
 Replenishment rate is infinite.
 Replenishment size, Q, is the decision variable.
 T is cycle time.
 The inventory holding cost, Ch per unit per time unit is known and constant during the period
under review.
 EOQ : Economic Order Quantity
 TC : Ordering and holding cost
 R : Reorder point

 σL : Standard deviation during lead time


 H : Holding cost
 T : Target Inventory

 σP + L : Standard deviation of demand the lead time and review period


QUESTIONS

1. Given the following data: D = 65,000 units per year, S = $120 per setup, P = $5 per unit, and H=
25% per year, calculate the EOQ and calculate annual costs following EOQ behaviour.
Answer: EOQ is 3533 units, for a total cost of $4,415.88

2. Holding costs are $35 per unit per year, the ordering cost is $120 per order, and sales are
relatively constant at 300 per month. What is the optimal order quantity? What are the annual
inventory management costs?

3. A company makes bicycles. It produces 450 bicycles a month. It buys the tires for bicycles from a
supplier at a cost of $20 per tire. The company’s inventory carrying cost is estimated to be 15%
of cost and the ordering is $50 per order.

(a) Calculate the EOQ Demand,


(b) What is the number of orders per year?

4. In the basic EOQ model, if D = 6000 per year, S = $100, H = $5 per unit per month, the economic
order quantity is approximately?

5. In the basic EOQ model, if D = 6000 per year, S = $100, H = $5 per unit per month, the economic
order quantity is approximately?

6. Consider a periodic review system with a lead time of 2 weeks, a review period of 4 weeks,
average weekly demand of 100 units, standard deviation of weekly demand of 20 units, and a
desired cycle-service level of 90%.
(a) What is the target inventory level?
(b) If it is time to review the item and 10 units are on hand, how many units should be ordered?

7. What is ABC Widget Company's inventory turns if it sells goods whose cost is $7,350,000 and its
average inventory is $1,225,000?

8. The reorder point for a product that is delivered two days after an order is placed and whose
average daily demand is 100 is?

9. What is the maximum inventory of a product that is produce in batches of 1000 when 500 units
are produced per day and 250 units are sold per day?

10. Given the following data, what is the cost of purchases?


Sales revenue $725,000
Cost of goods sold $345,000
Ending inventory $250,000
Beginning inventory $120,000

11. Given the following data, what is the weighted – average cost of ending inventory rounded to
the nearest whole dollar?
(Do not round in the process of your calculation, only round your final answer.)

Sales revenue 100 units at $15 per unit


Beginning inventory 40 units at $9 per unit
Purchases 80 units at $10 per unit

12. Given the following data, what is the cost of goods sold as determined under the FIFO method?
Sales revenue 350 units at $35 per unit
Beginning inventory 120 units at $15 per unit
Purchases 400 units at $20 per unit

13. Calculate the cost of goods for the period using the weighted – average method for a periodic
inventory system, rounding to the nearest dollar.

1/1 Beginning inventory 40 units at $12 per unit


3/5 Purchases 20 units at $14 per unit
4/15 Sale 30 units at $30 per unit
5/30 Purchases 40 units at $11 per unit
11/15 Sale 50 units at $32 per unit

14. Inventory data for Cold Sels Company for January 2022 are as follows:
January 1 balance 80 units at $25
January 10 purchase 100 units at $28
January 15 sale 120 units
January 21 purchase 90 units at $32
January 28 sale 110 units
Using FIFO, compute ending inventory as of January 31, 2022 and determine cost of good sold
for January.

15. Swezendger Ltd uses the lower cost and net realizable value rule to value its basketball
equipment inventory. Swezendger defines market as net realizable value. Swezendger’s
inventory on January 31, 2022 had a cost of $1,200,000 and an NRV of $1,125,000.
Required:
a. By how much should Swezendger’s inventory be written down?
b. Prepare the journal entry that Swezendger should prepare to record the write-down.
c. What amount should be reported for inventory on Swezendger’s January 31, 2022 balance
sheet?

THANK YOU.

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