Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sel
ID: 2458387 • Letter: G
Question
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
Relevant ordering costs per purchase order $114.50
Carrying costs per package per year:
Relevant insurance, materials handling,
breakage, etc., per year $ 4.50
11) What is the economic order quantity?
A) 64.08 packages
B) 21.04 packages
C) 37.50 packages
D) 72.03 packages
12) What are the annual relevant ordering costs?
A) $9,057
B) $7,157
C) $8,266
D) $7,121
13) What are the annual relevant carrying costs?
A) $7,122
B) $8,265
C) $9,057
D) $7,157
14) What are the relevant total costs?
A) $14,279
B) $18,114
C) $16,531
D) $14,278
15) How many deliveries will be made during each time period?
A) 72.19 deliveries
B) 60.11 deliveries
C) 89.23 deliveries
D) 52.18 deliveries
Explanation / Answer
11)
Economic Order Quantity = (2AO/c)^(1/2)
Economic Order Quantity = (2*312000*114.50/(4.50/60+25*15%))^(1/2)
Economic Order Quantity = 4321.95 Unit
Economic Order Quantity in package = 4321.95/60
Economic Order Quantity in package = 72.03 Package
12)
Annual total required package = 312000/60 = 5200
Annual relevant ordering costs = Annual total required package/Economic Order Quantity in package * Ordering cost
Annual relevant ordering costs = 5200/72.03 * 114.50
Annual relevant ordering costs = 8266
13)
Annual relevant carrying costs = (72.03*60/2)*(4.5/60+25*15%)
Annual relevant carrying costs = $ 8265
14)
The relevant total costs = 8266+8265
The relevant total costs = $ 16531
15)
No of deliveries = Annual total required package/Economic order quantity
No of deliveries = 5200/72.03
No of deliveries = 72.19 deliveries
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