Francq Company is a regional distributor of automobile window glass With the growing level of consumer demand for fuel efficient subcompact cars, management recognizes a need to determine the total inventory cost associated with maintaining an optimal supply of replacement windshields that will fit these vehicles Francq is expecting a daily demand for 100 windshields The purchase price of each windshield is $200 Other costs associated with ordering and maintaining an inventory of these windshields are as follows a The historical ordering costs incurred in the Purchase Order Department for placing and processing orders are shown below Year Orders Placed and Processed Total Ordering Costs 1 56 $ 34,440 2 154 34,930 3 280 35,560 Management expects the order costs to increase 20 over the amounts and rates experienced during the past three years The windshield manufacturer charges Francq a $104 shipping fee per order A 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 a rate of $15 00 per hour Related variable overhead costs in this department are applied at the rate of $2 50 per hour Additional warehouse space will have to be rented to store the new windshields Space can be rented as needed in a public warehouse at an estimated cost of $5,000 per year plus $5 00 per windshield Breakage cost is estimated to be 10 of the cost per windshield Taxes and fire insurance on the inventory are $5 00 per windshield The desired rate of return on the investment in inventory is 15 of the purchase price Five working days are required from the time an order is placed with the manufacturer until it is received Francq uses a 300 day work year when making EOQ computations Required Calculate the following values for Francq Company 1 Value for ordering cost that should be used in the EOQ formula 2 Value for storage cost that should be used in the EOQ formula 3 EOQ 4 Minimum annual total storage and carrying costs at the EOQ point 5 Reorder point in units

Francq Company is a regional distributor of automobile window glass. With the growing level of consumer demand for fuel-efficient subcompact cars, management recognizes a need

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Posted on Oct 02, 2024

Orders Placed and Processed

Total Ordering Costs

Francq Company is a regional distributor of automobile window glass. With the growing level of consumer demand for fuel-efficient subcompact cars, management recognizes a need to determine the total inventory cost associated with maintaining an optimal supply of replacement windshields that will fit these vehicles. Francq is expecting a daily demand for 100 windshields. The purchase price of each windshield is $200.

Other costs associated with ordering and maintaining an inventory of these windshields are as follows:

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

Management expects the order costs to increase 20% over the amounts and rates experienced during the past three years.

The windshield manufacturer charges Francq a $104 shipping fee per order.
A 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 a rate of $15.00 per hour. Related variable overhead costs in this department are applied at the rate of $2.50 per hour.
Additional warehouse space will have to be rented to store the new windshields. Space can be rented as needed in a public warehouse at an estimated cost of $5,000 per year plus $5.00 per windshield.
Breakage cost is estimated to be 10% of the cost per windshield.
Taxes and fire insurance on the inventory are $5.00 per windshield.
The desired rate of return on the investment in inventory is 15% of the purchase price.

Five working days are required from the time an order is placed with the manufacturer until it is received. Francq uses a 300-day work-year when making EOQ computations.

Required: Calculate the following values for Francq Company: 1. Value for ordering cost that should be used in the EOQ formula.

2. Value for storage cost that should be used in the EOQ formula.

3. EOQ.

4. Minimum annual total storage and carrying costs at the EOQ point.

5. Reorder point in units.