Question #1

A firm expects to sell 50,000 units of its product annually. It estimates that it costs $2,000 to place an order and that each unit costs $8.00 annually to carry in inventory. It takes 4 days to receive an order once it is placed. Assume that the store is open every day of the year.

a) How many units should the firm order at a time if it wants to minimize the sum of ordering and carrying costs?

b) How many orders will it place in a year?

c) How much will total ordering costs be for the year?

d) What will its average inventory level (in units) be during the year?

e) How much will total carrying costs be for the year?

f) What is its reorder point?

g) What would you expect to happen to the reorder point if uncertainty is taken into consideration?

Question #2

If a firm is considering implementing a JIT inventory system, list and describe the accounting issues that the firm should consider when making this decision.