2.Paisa Auto Glass is a regional distributor of automobile window glass.The windshields are

manufactured in Japan and shipped to Paisa.Management is expecting an annual demand of 10,800 windshields.The purchase price per windshield is $395.Other costs associated with ordering and maintaining an inventory of these windshields are as follows:

lThe historical ordering costs incurred in the Purchase Order Department for placing and processing orders are shown below.

YearOrders Placed and ProcessedTotal Processing Costs

199915$11,900

20005012,075

20019512,300

Management expects the ordering costs to increase 16 percent over the amounts and rates experienced the last three years.

lEach order is inspected by both Japan and Taiwan officials at the border.A $75 fee is charged.

lA clerk in the Receiving Department receives, inspects, and secures the windshields as they arrive from the manufacturer.This activity requires eight hours per order received.This clerk has no other responsibilities and is paid at the rate of $9 per hour.Related variable overhead costs in this department are applied at the rate of $2.50 per hour.

lAdditional warehouse space will have to be rented to store the new windshields.Space can be rented as needed in a warehouse at an estimated cost of $2,500 per year plus $5.35 per windshield.

lBreakage cost is estimated to average $3.00 per windshield.

lTaxes and fire insurance on the inventory are $1.15 per windshield.

lOther storage costs amount to $10.50 per windshield.

lPaisa Auto Glass operates on a six-day work week for 50 weeks each year.The firm is closed two weeks each year.

Six working days are required from the time the order is placed with the manufacturer until it is received.

Required:

Calculate the following values to Paisa Auto Glass Company.

1)The value of the ordering cost that should be used in the EOQ formula. (Hint: Use the high-low

method to estimate the variable portion of the processing cost per order.)(4%)

2)The value of the storage cost that should be used in the EOQ formula.(4%)

3)The economic order quantity.(4%)