Assignment 18 - The Management of Accounts Receivable and Inventories Consider the case of Virginia Hydroponics Company: Virginia Hydroponics Company is a wholesaler of seeds and plant nursery products. It customarily sells Bessie's Best Cow Manure, an excellent fertilizer for spring gardens, which is ordered from Bessie's Dairy, a local dairy farm. Bessie's Best is sold in 25- and 50-pound bags. The 25-pound bags are generally purchased by homeowners and others tending personal gardens, while the larger bags are usually purchased by landscaping firms and commercial growers. Virginia is open all year long and sells the smaller bags of Bessie's Best for $4 each and the larger bags for $6 each. It currently is out of Bessie's Best and is preparing to order the first shipment of the season. A review of last year's sales records shows that Virginia placed 13 orders and sold 25,000 25-pound bags and 100,000 50-pound bags. Virginia paid $20 for each order placed. Because the manure is transported and stored in bags stacked on shrink-wrapped pallets, so the threat of theft, obsolescence, and decay is very low, the carrying cost of the fertilizer is $1.00 per bag. In addition to handling and storage costs, carrying costs also include property and liability insurance premiums, tax expenses, and the opportunity cost on the funds invested in the inventory. Yesterday's conversation with Henry Harris, confirmed the same terms would apply this year. Another dairy farm, Gage's Guernsey Farm, has approached Virginia Hydroponics Company with a competing offer. Gage's offer specifies that not only will it beat Bessie's best price by $1 per bag, but it will also offer advice on how Virginia can minimize the total inventory costs associated with their fertilizer purchases. In addition, the cost of placing an order will decrease to $10 per order. A chemical analysis of samples of Bessie's Best and Gage's Greatest has indicated that the quality of two fertilizers is identical. You have been asked by the owner of Virginia's Virginia to apply the economic ordering quantity (EOQ) model to Virginia's data and compare the two offers. Complete the following table for Virginia's inventory of 25-pound bags. Make sure to round your answers up or down to the next whole bag, order, or dollar, as appropriate, and assume that sales are uniformly distributed throughout the year. Bessie's Best (Based on current practices) 2,000 bags Gage's Greatest (Based on EOQ) 13 $260 Analysis Order size (bags per order) Number of orders per year Total ordering costs Average inventory (bags) Total carrying costs Total inventory costs Assignment 18 - The Management of Accounts Receivable and Inventories Consider the case of Virginia Hydroponics Company: Virginia Hydroponics Company is a wholesaler of seeds and plant nursery products. It customarily sells Bessie's Best Cow Manure, an excellent fertilizer for spring gardens, which is ordered from Bessie's Dairy, a local dairy farm. Bessie's Best is sold in 25- and 50-pound bags. The 25-pound bags are generally purchased by homeowners and others tending personal gardens, while the larger bags are usually purchased by landscaping firms and commercial growers. Virginia is open all year long and sells the smaller bags of Bessie's Best for $4 each and the larger bags for $6 each. It currently is out of Bessie's Best and is preparing to order the first shipment of the season. A review of last year's sales records shows that Virginia placed 13 orders and sold 25,000 25-pound bags and 100,000 50-pound bags. Virginia paid $20 for each order placed. Because the manure is transported and stored in bags stacked on shrink-wrapped pallets, so the threat of theft, obsolescence, and decay is very low, the carrying cost of the fertilizer is $1.00 per bag. In addition to handling and storage costs, carrying costs also include property and liability insurance premiums, tax expenses, and the opportunity cost on the funds invested in the inventory. Yesterday's conversation with Henry Harris, confirmed the same terms would apply this year. Another dairy farm, Gage's Guernsey Farm, has approached Virginia Hydroponics Company with a competing offer. Gage's offer specifies that not only will it beat Bessie's best price by $1 per bag, but it will also offer advice on how Virginia can minimize the total inventory costs associated with their fertilizer purchases. In addition, the cost of placing an order will decrease to $10 per order. A chemical analysis of samples of Bessie's Best and Gage's Greatest has indicated that the quality of two fertilizers is identical. You have been asked by the owner of Virginia's Virginia to apply the economic ordering quantity (EOQ) model to Virginia's data and compare the two offers. Complete the following table for Virginia's inventory of 25-pound bags. Make sure to round your answers up or down to the next whole bag, order, or dollar, as appropriate, and assume that sales are uniformly distributed throughout the year. Bessie's Best (Based on current practices) 2,000 bags Gage's Greatest (Based on EOQ) 13 $260 Analysis Order size (bags per order) Number of orders per year Total ordering costs Average inventory (bags) Total carrying costs Total inventory costs
