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FOLEO FONES CASE STUDY Chapter 5.' Assume you are the management accountant for the Foleo Group. Tracey Chen, the CFO, has called you into a
FOLEO FONES CASE STUDY Chapter 5.' Assume you are the management accountant for the Foleo Group. Tracey Chen, the CFO, has called you into a meeting, to discuss the performance of the Warehouse Manager of the Foleo Fones business unit in managing his inventory stocks. After his last meeting with the Production Manager, Allan Raymond, the Business Unit GM, has supplied Tracey with below data relating to the inventory management practices for the current year. Tracey asks you analyse this data and before her Boa rd meeting next week. Inventory Management Activities Current Year's Cost Selection of Supplier $300 __, Warehouse rental (variable) $90,000 I Handling of inventory $1,100 Transportation of inventory $600 I Insurance $7,400 __i Unloading delivered inventory from freight truck $750 Inspecting delivered orders $900 Spoilage and obsolescence of inventory $6,000 Theft of inventory $4,300 ._. The Production Manager has indicated that the Foleo Fones plant requires 24,000 kg of plastics annually and on average, the lead time for deliveries of the plastics is one month. He has also advised he orders 2,000 kg per month, and that the monthly usage typically uctuates between 1,800 and 2,500 kg. This practice has resulted regularly in stock-out situations. The Manager has also estimated that the above ordering costs will increase by 5% and the carrying costs by 7% next year. (a) Using the above data, calculate the following: the amount of ordering cost that should be used in the EOQ formula, the amount of carrying cost that should be used in the EOQ formula, and the optimum order quantity for the plastics raw materials required to produce the SliFones for the CURRENT YEAR using the EOQ formula. (HINT: show all your workings and round up your EOQ if necessary.) (HINT: the above data is for the entire year, so you will need to calculate the total components for the year and then convert them to what you will need for the EOQ formula.) I 1.5 marks)
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