Question 1 Ordering Cost, Carrying Cost, and Total Inventory-Related Cost Zellen

Question

Question 1

Ordering Cost, Carrying Cost, and Total Inventory-Related Cost

Zellen Company purchases 10,000 units of Product Beta each year in lots of 500 units per order. The cost of placing one order is $4, and the cost of carrying one unit of product in inventory for a year is $1.00.

Required:

1. How many orders for Beta does Zellen place per year? Round your answer to the nearest whole number of orders, if rounding is required.
orders

2. What is the total ordering cost of Beta per year? Round your answer to the nearest dollar.
$

3. What is the total carrying cost of Beta per year? Round your answer to the nearest dollar.
$

4. What is the total cost of Zellen's inventory policy for Beta per year? Round your answer to the nearest dollar.
$

5. Conceptual Connection: Is Zellen's order size equal to the EOQ amount?
No

Question 2

Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.

A sales commission of 5% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $19,100 for the sweater line and $49,000 for the jacket line.

Common fixed overhead for the factory was estimated to be $45,900. Common selling and administrative expense was estimated to be $17,300.

1. Prepare a segmented income statement for Knitline for the coming year, using variable costing. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement. If an amount is negative, first enter a minus sign (-).

Knitline Inc.

Segmented Income Statement

For the Coming Year

1

Sweaters

Jackets

Total

2

3

4

5

6

7

8

9

10

11

12

13

14

Sweaters Jackets Sales $ 208,700 $ 451,300 Variable cost of goods sold 145,000 197,300 Direct fixed overhead 25,200 46,900

Explanation / Answer

1)units=10,000 and in 500 unit lots
cost of order=$4 and carrting cost=$1

1)No of orders=10,000/500=20

2) ordering cost=20*4=$80

3)Carrying cost= 10,00081=$10,000

4) Total cost=80+10000=10,080

5)
EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)

=sqrt(2*10000*4/1)=282

No of orders=10,000/282=36 orders

Order size is lesser than EOQ amount

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