Log in
Accounting
1
answer
0
watching
115
views

Star enterprises is a seller of lamps. In this case consider the replenishment/stocking decision for product named Lamp A. Star purchases Lamp A from a supplier and then sells them to customers. The mean monthly demand for Lamp A is normal. It has a mean and standard deviation of 150 and 50, respectively. The lead-time for Lamp A is also normally distributed with mean of 1 month and standard deviation of 15 days (Assuming there are 30 days in a month). Star purchases Lamp A from the supplier for $30 per unit and uses an annual holding/carrying cost rate of 12%. The fixed cost associated with placing an order of Lamp A to the supplier is $80. Assume that Star estimates a $100 cost associated with each stock-out (independent of the units backordered). It targets a fill rate of 98% for Lamp A. FInd the following -

a)What is Stars’s Economic Order Quantity (EOQ), Reorder point and the associated Average monthly total cost of the operation?

b) Is this replenishment operation a Pull or a Push system?

Watch
1
answer
0
watching
115
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Bunny Greenfelder
Bunny GreenfelderLv2
30 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Ralph and InventoryManagement

During discussions, Ralph, our hospital stockroom managergestures proudly at the ceiling-high stocked warehouse and statesthat he has never had to turn away any request for any item. Inother words, he is providing his users 100% CSL (cycle servicelevel). We ask him what the average lead times are for the mostused meds and he responds “within 3 days for most items”. He thengoes quiet, as the implications of what he has just said sink in –why keep so much inventory of everything when replenishments areonly 3 days away? Well, he says defensively, after a pregnantpause, “As I said, I have never had to turn any user away and youdon’t know how wildly variable demand can be in a hospital”. Sure,we think, but not so variable as to call for a warehouse full ofmed items! Let’s help Ralph out.

- Pick a few ‘A’ or vital SKUs from inventory,based on importance in terms of sales, profits, stockoutconsequences to customers, or cost of holding.

We pick a high cost and vital item, heart stents, with uncertaindemand.

- Find out the current formal inventorypolicies, if any, in use for those items (and when these wereset).

Ralph uses a continuous inventory management system forstents:

Order size: 300 units per order

ROP: 200 units (inclusive of safety stock of 50 units), i.e.,order whenever the inventory position falls to 200 units

- Find out whether these policies are beingfollowed.

Ralph confirms that he inherited these policies and followsthem.

- Ascertain current operational inventorymanagement parameters.

Ralph provides the following estimates:

Holding cost H = 25% of item cost

Ordering cost S = $100/order

Current supply lead times LT: 3 days stable

Average daily demand d: 50 units/day

Standard deviation of daily demand σd:3units

Actual customer cycle service level: 100%

Item cost: $1000/unit

Assume 365 working days in a year

1. Develop recommended order size (EOQ) and aROP for the selected SKU using the above current operationalinventory management parameters. Maintain CSL at 100%.

a) Recommended EOQ = ? units

b) Recommended ROP = ? units

EOQ = √ (2*D*S)/H; where D = Annualdemand; S = Cost of placing one order; H = Cost of holding 1 unitin inventory for 1 yr

ROP = d * Leadtime + Safety Stock

Safety Stock = z value correspondingto CSL of 100% * σd √LT;

where d is average daily demand,σd = standard deviation of demand, LT = leadtime

# of orders/yr= D/EOQ (order qty)

2. Compute and show the differences inrecommended order size, ROP, and total costs for the selected SKUvs. current figures.

Current System

Total cost = TotalHolding Cost + Total Ordering Cost

= Avg Inventory * H + # of Orders/yr *S

= Avg Inventory * H + (D/Order Qty) *S

= ?

Average Inventory = ? units

Recommended System

Total cost = ?

Average Inventory = ? units

Total cost saving with recommendedsystem comparted to current system= $?

Capital investment avoided = ? (fromreducing average inventory @$1000/unit)

3. Can we do even better?

a) If Ralph could reduce the current lead time of 3 days to 2days without significant cost increases:

Revised ROP = ? units

Reduced safety stock = ? units

Reduced average inventory = ?units

b) If Ralph could reduce the cost of placing an order (S) to say$50 instead of the current $100/order by migrating the orderingprocess to a web based system:

Revised EOQ = ? units

Which means that:

Revised average inventory = ?units

and,

Revised total costs = $?

c) Anything else Ralph can do tolower the Total Cost?

PLEASE SHOW EVERY STEP OFTHIS PROBLEM PRECISILY WHEN SOLVED SO I CAN UNDERSTAND THE STEPS. IWOULD REALLY APPRECIATE IF THE SOLUTIONS WOULD BE SHOWN OUT STEP BYSTEP

Background

Zhou Bicycle Company (ZBC), located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1981 by University of Washington Professor Yong-Pin Zhou, the firm’s primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC within 2 days after notifying the distribution center, provided that the stock is available. However, if an order is not fulfilled by the company, no backorder is placed; the retailers arrange to get their shipment from other distributors, and ZBC loses that amount of business.

The company distributes a wide variety of bicycles. The most popular model, and the major source of revenue to the company, is the AirWing. ZBC receives all the models from a single manufacturer in China, and shipment takes as long as 4 weeks from the time an order is placed. With the cost of communication, paperwork, and customs clearance included, ZBC estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by ZBC, per bicycle, is roughly 60% of the suggested retail price for all the styles available, and the inventory carrying cost is 1% per month (12% per year) of the purchase price paid by ZBC. The retail price (paid by the customers) for the AirWing is $170 per bicycle.

ZBC is interested in making an inventory plan for 2016. The firm wants to maintain a 95% service level with its customers to minimize the losses on the lost orders. The data collected for the past 2 years are summarized in the following table. A forecast for AirWing model sales in 2016 has been developed and will be used to make an inventory plan for ZBC.

Month

2014

2015

2016 Forecast

January

6

7

8

February

12

14

15

March

24

27

31

April

46

53

59

May

75

86

97

June

47

54

65

July

30

34

39

August

18

21

27

September

13

15

16

October

12

13

15

November

22

25

28

December

38

42

47

Totals

343

391

447

Bonus Question: Trace the inventory balance over the course of the year. Assume starting inventory balance of 35 bicycles. Also assume that retail orders are called into ZBC the first business day of every month and the first order to ZBC suppliers is on Jan 4, 2016.
Hint: Take into consideration orders to suppliers and supplier lead time, orders from retailers and lead time in shipments to retailers, as well as the estimated time between orders to suppliers. Consider creating a table such as:

What conclusions or recommendations do you draw from tracing the inventory in step 5?

Date

Description

Order Amount

Inventory In

Inventory Out

Inventory Balance

Beginning inventory

35

1/4/2016

Monday

Retail order received

8

35

1/4/2016

Monday

Order placed to supplier

EOQ

35

####

XXXXX

Retail order sent out

8

27

####

XXXXX

Supplier order received

EOQ

###

2/1/2016

Monday

Retail order received

15

###

####

XXXXX

Retail order sent out

15

###

####

XXXXX

Order placed to supplier

EOQ

###

The following events occurredin August and September:

8/1 YOU filed a charter withthe State of Louisiana to form the YOUR Accounting Corporation. Thecharter authorizes you to issue 5000 shares of $2 par common stock.The state charged you a $75 fee to file the charter. Since yourbusiness is not yet approved, you had to pay this fee usingpersonal funds.

9/1 You received your charterfrom the State of Louisiana and officially opened yourbusiness. Your first order of business was to become ashareholder of YOUR Accounting Corp. To do this, you purchased 500shares of common stock by issuing a check to YOUR Accounting Corpfor $10,000. You used this money to open a checking account atFirst Funds Bank.

9/1 You rented an office forYOUR Accounting Corp. The monthly rent is $500, with the firstmonth’s rent due immediately. You issue check #100 to OfficeBuilders for the first month’s rent.

9/2 You then went to the Applestore and purchased a new computer system for your business. YourMac Pro cost $2700 and your new printer cost $450. You set up a30-day account with Apple to make this purchase.

9/3 You ordered business cardsand stationary from Marketing Media on account. The order totaled$250 and will be shipped FOB Destination. (Record all purchases ofsupplies in the Supplies on Hand account).

9/4 You decided to purchase anew vehicle for your business. Upon visiting Pro-Auto, you decideon a new SUV at a cost of $55,000. This vehicle will be used 100%for business purposes. You finance the vehicle with Pig E Bank at arate of 5% for 6 years. Your first monthly payment is due onOctober 4.

NOTE: You will need to create a loan amortization schedule todetermine the amount of the monthly note and the interest expensefor each month. You can use a website such as www.bankrate.com tocreate the schedule. When recording your journal entries, round allamounts to the nearest dollar.

9/5 You went to the KEM Supplyto purchase supplies for your business at a cost of $600. KEMopened a customer charge account for you. The payment terms on youraccount will be 2/10, net 30. The time period for determining thepayment amount begins on the purchase date.

9/6 You purchased a one-yearauto insurance policy from InsureMart for $1200. InsureMart willsend you a bill for the policy. YOUR Accounting Corporationcapitalizes all insurance policies on the date of purchase andrecords the necessary expense at year-end as an adjustingentry.

9/10 Your firstclient, Red Fische, came in today needing assistance with filingthe appropriate paperwork to start his new seafood restaurant. Youissued invoice #1 to Red Fische and he paid you an initial $2,000Engagement Fee. Red Fische also agreed to contract with you toprovide accounting services for $2,500 per month.

9/12 You issue check#101 to YOUR Accounting Corp to establish a $500 Petty Cash Fund.You will use this account to make small cash purchases.

9/12 You reimburseyourself for the filing fees associated with forming yourcorporation.

9/14 You paid KEM Supply by issuingcheck #102

9/15 You hire anadministrative assistant, Mandi Handi, she will be paid a monthlysalary of $1500. You have decided that all pay periods will end onthe last day of the month and that checks will be issued on the5th of each month.

NOTE: Assume the following rates when preparing the payroll:federal income tax 15%, state income tax 5%, and FICA 7.65%.

YOUR Accounting Corp. has state and federal unemployment insurancerates of 1% (FUTA) and 2% (SUTA) on the first $7,700 of wages peremployee. The employer FICA rate is 7.65%.

9/16 Marketing Mediadelivered your business cards and stationary. Check #103 was issuedto pay for the supplies.

9/20 You visited anew client, Anita Cooke, to set up a Quickbooks accounting systemfor her new business, Cooking For You. You gave Anita and invoice#2 for the Engagement Fee and she paid you by issuing a check inthe amount of $2,000. Anita also agreed to a monthly fee of $1,500for you to handle her ongoing accounting needs.

9/22 You purchased$50 of fuel for your new SUV from Get ‘n Go. You charged this toyour Get ‘n Go account.

9/30 Mandi sentpro-rated invoices, #3 & #4 , to Red Fische and Cooking For Youfor Monthly Accounting Services. The payment terms are 1/10, net30.

9/30 You accruedinterest on the Pig E. Bank note. Accrue interest based on thenumber of days in the month.

9/30 You computedand accrued the payroll for September.

9/30 You receivedmonthly bills for the following:

Max Power Company - $100, terms n/30

WaterWorks #1 - $20, terms n/30.

Assignment #1: For the Monthof September

· In proper General Journal format, record the transactions for themonth; include descriptions of each transaction with your journalentry. Use only the accounts shown in the chart of accounts.

· Post the journal entries for the month to the general ledgeraccounts, use appropriate posting references.

· Prepare a trial balance for the period ending September 30.

o Using proper format,create your trial balance in Microsoft Excel. Do not use any trialbalance templates. Include all accounts from the chart of accounts.Even those with zero balances. Your accounts in the trial balanceshould be in the exact order shown in the chart of accounts.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in