A company manufactures motors. It buys the coil (a component used in the motor) from a vendor
Question:
A company manufactures motors. It buys the coil (a component used in the motor) from a vendor at a price of $12 per unit. Assume there are 300 business days in a year and the company assembles 45 motors a day (daily demand or usage), or 13500 motors per year. Inventory holding cost rate is 15% of the value of the coil per unit per year and ordering cost is $ 28 per order.
1) If the company orders 2250 units each time, what is the total cost? $ (two decimal points)
2) What is the cycle time in days under the current ordering policy of 2250 shirts? days. (two decimal points)
3) What is the optimal ordering quantity that minimizes the total cost? days. (two decimal points)
[Production model:] Recently, the company decided to produce the coils itself instead of ordering them from outside. Current production lot size (quantity) is 2300 and daily production rate is 55 units, assuming the value of a coil and the holding cost rate are the same as those in the ordering model, i.e., same holding cost per unit per year. In addition, assume setup cost is the same as the ordering cost, i.e., $ 28 per setup.
4) What is the maximum inventory under the current production lot size of 2300? units (two decimal points)
5) What is the production run time in days under the current production lot size? days (two decimal points)
6) What is the Total Cost under the current production lot size? $ (two decimal points)
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu