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    Required:: Financial Management

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    BKS Sannyasi
    Vostick Filter Company distributes air filters and orders them in lots of 1,000 from manufacturers. With a monthly demand of 20,000 filters and carrying cost of $0.10 per filter, the optimal order quantity is 20,000 filters. If the carrying cost was cut in half, the optimal order quantity would be 20,000 filters. If the ordering cost was reduced to $10, the optimal order quantity would be 10,000 filters.

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    Required:: Financial Management

    Uploaded by

    BKS Sannyasi
    269 views5 pages
    Vostick Filter Company distributes air filters and orders them in lots of 1,000 from manufacturers. With a monthly demand of 20,000 filters and carrying cost of $0.10 per filter, the optimal order quantity is 20,000 filters. If the carrying cost was cut in half, the optimal order quantity would be 20,000 filters. If the ordering cost was reduced to $10, the optimal order quantity would be 10,000 filters.

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    Vostick Filter Company distributes air filters and orders them in lots of 1,000 from manufacturers. With a monthly demand of 20,000 filters and carrying cost of $0.10 per filter, the optimal order quantity is 20,000 filters. If the carrying cost was cut in half, the optimal order quantity would be 20,000 filters. If the ordering cost was reduced to $10, the optimal order quantity would be 10,000 filters.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    269 views5 pages

    Required:: Financial Management

    Uploaded by

    BKS Sannyasi
    Vostick Filter Company distributes air filters and orders them in lots of 1,000 from manufacturers. With a monthly demand of 20,000 filters and carrying cost of $0.10 per filter, the optimal order quantity is 20,000 filters. If the carrying cost was cut in half, the optimal order quantity would be 20,000 filters. If the ordering cost was reduced to $10, the optimal order quantity would be 10,000 filters.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    Financial Management

    Vanhorn 12/e

    A/R RECEIVABLE & INVENTORY MANAGEMENT

    Vostick Filter Company is a distributor of air filters to retail stores. It buys its filters from
    several manufacturers. Filters are ordered in lot sizes of 1,000, and each order costs $40 to
    place. Demand from retail stores is 20,000 filters per month, and carrying cost is $0.10 a filter
    per month.
    REQUIRED:

    a) What is the optimal order quantity with respect to so many lot sizes (that is, what multiple
    of 1,000 units should be ordered)?
    b) What would be the optimal order quantity if the carrying cost were cut in half to $0.05 a
    filter per month?
    c) What would be the optimal order quantity if ordering costs were reduced to $10 per
    order?
    Financial Management
    Vanhorn 12/e

    A/R RECEIVABLE & INVENTORY MANAGEMENT

    Porras Pottery Products, Inc., spends $220,000 per annum on its collection department. The
    company has $12 million in credit sales, its average collection period is 2.5 months, and the
    percentage of bad-debt losses is 4%. The company believes that, if it were to double its
    collection personnel, it could bring down the average collection period to 2 months and bad-
    debt losses to 3%. The added cost is $180,000, bringing total collection expenditures to
    $400,000 annually.
    Is the increased effort worthwhile if the before-tax opportunity cost of funds is 20%? If
    it is 10%?
    Financial Management
    Vanhorn 12/e

    A/R RECEIVABLE & INVENTORY MANAGEMENT

    A college bookstore is attempting to determine the optimal order quantity for a popular book
    on psychology. The store sells 5,000 copies of this book a year at a retail price of $12.50, and
    the cost to the store is 20% less, which represents the discount from the publisher. The store
    figures that it costs $1 per year to carry a book in inventory and $100 to prepare an order for
    new books.
    REQUIRED:

    a) Determine the total inventory costs associated with ordering 1,2,5,10, & 20 times a year.
    b) Determine the economic order quantity.
    c) What implicit assumptions are being made about the annual sales rate?
    Financial Management
    Vanhorn 12/e

    A/R RECEIVABLE & INVENTORY MANAGEMENT

    The Hedge Corporation manufactures only one product: planks. The single raw material used
    in making planks is the dint. For each plank manufactured, 12 dints are required. Assume that
    the company manufactures 150,000 planks per year, that demand for planks is perfectly
    steady throughout the year, that it costs $200 each time dints are ordered, and that carrying
    costs are $8 per dint per year.
    REQUIRED:

    a) Determine the economic order quantity of dints.


    b) What are total inventory costs for Hedge (total carrying costs plus total ordering costs)?
    c) How many times per year would inventory be ordered?
    Financial Management
    Vanhorn 12/e

    A/R RECEIVABLE & INVENTORY MANAGEMENT

    A firm that sells 5,000 blivets per month is trying to determine how many blivets to keep in
    inventory. The financial manager has determined that it costs $200 to place an order. The
    cost of holding inventory is 4 cents per month per average blivet in inventory. A five-day lead
    time is required for delivery of goods ordered. (This lead time is known with certainty.)
    REQUIRED:

    a) Develop the algebraic expression for determining the total cost of holding & ordering
    inventory.
    b) Plot the total holding costs and the total ordering costs on a graph where the horizontal
    axis represents size of order and the vertical axis represents costs.
    c) Determine the EOQ from the graph.

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