Business College

A North Face retail store in Chicago sells 500 jackets each month. Each jacket costs the store $100 and the company has an annual holding cost of 25 percent. The fixed cost of a replenishment order (including transportation cost) is $100. The store currently places a replenishment order for Q.

1. What is the annual holding and ordering cost?

2. On average, how long does a jacket spend in inventory?

3. If the retail store wants to minimize ordering and holding cost, what order size do you recommend?

4. How much would the optimal order reduce holding and ordering cost relative to the current policy?

Answers

Answer 1

Answer:

(1) The annual holding cost is =$6250, The ordering costs is = 500 units

(2) The total cost is = $7450

(3)224 unit

(4) $1,864.30

Explanation:

Solution

Given that:

The annual demand = 520 units * 12

= 6,240 units

The cost per order = $100 per order

The Carrying Cost = 0.25% * $100

= 25 per unit per year

Thus

(1) The Ordering quantity = 500 units every month

The annual holding cost =0.5*quantity ordered*holding cost

The  Annual Holding cost = 0.5*500*25

Annual Holding cost =$6250

(2) The  ordering (Annual)cost = number of orders *cost per order

Annual ordering cost =(500*12/500)*100

Annual ordering cost =$1200

Total cost = 6250+1200=7450

(3)Thus

EOQ=(2*D*S/h)^0.5

EOQ=(2*6240*100/25^)0.5

EOQ=223.43

=224 unit

(4)The ordering cost =(6240/224)*100=2785.70

Holding cost=0.5*224*25

=2800

Total cost= 2785.70+2800

Total cost=5585.70

Total savings = 7450 - 5585.70

= $1,864.30

Related Questions

An investor buys a 10-year, 7% coupon bond for $1,050, holds it for 1 year, and then sells it for $1,040. What was the investor's rate of return?

Answers

Answer:

The answer is 5.71%

Explanation:

Solution

Given that

Coupon rate = 7%

Bond = $1050

Sale of the bond = $1040

n = 10 years, n = 1 year

Now we find the investor's rate of return

Thus

Coupon payment = 7%* 1000

=70

1050 = 70/(1+r) + $1,040/(1+r)

r= 5.71%

Therefore the rate of return of the investor is 5.71%

or

Rate of return = (P1-P0+ Interest ) /P0

= (1040 -1050 + 70 )/1050

= .0571 or 5.71%

Specter Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $ 820 2 1,130 3 1,390 4 1,525 a. If the discount rate is 10 percent, what is the present value of these cash flows

Answers

Answer:

$3,765.26

Explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator

Cash Flow in year 1 = $ 820

Cash Flow in year 2 = 1,130

Cash Flow in year 3 = 1,390

Cash Flow in year 4 = 1,525

I = 10

PV = $3,765.26

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

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