Problem 13-3
A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,600 bags a year.
Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual
carrying costs are $75 per bag.
Determine the economic order quantity. (Do not round intermediate calculations. Round your
final answer to the nearest whole number.)
What is the average number of bags on hand?(Round your answer to the nearest whole number.)
=18
How many orders per year will there be? (Round your final answer to the nearest whole
number.)
Compute the total cost of ordering and carrying flour. (Round your answer to 2 decimal places.
Omit the \"$\" sign in your response.)
If holding costs were to increase by $9 per year, how much would that affect the minimum total
annual cost? (Round intermediate order qty to nearest whole number and round your answer to 2
decimal places. Omit the \"$\" sign in your response.)
A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,600 bags a year.
Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual
carrying costs are $75 per bag.
Solution
--
D = Demand= 4600 bags/year
C = Inventory Carrying cost or holding cost = 75
O = Ordering cost= $10 per order
sqrt = square root
(a)
Economic Order Quantity (EOQ) = Q = sqrt(2DO/C) = sqrt(2*4600*10/75) = 35.024 = 36 bags
(b) Average number of bags in hand = average inventory = Q/2 = 36/2 = 18 bags
c) Orders per year = D/Q = 4600/35.024 = 131.34 = 132 orders per year
(d)
Total cost (TC) = product cost (PC) + Inventory Cost (IC) + Ordering cost (OC)
TC = PC + IC + OC
PC = unit price * demand = as the unit price is not given, this part cannot be included in TC
hence TC = IC + OC
IC = Average Inventory * Carrying cost
= Q/2 * C = 36/2 * 75 = 1350
OC = D/Q * O = 4600/35.024 * 10 = 1320
TC = 1350 + 1320 = $2670
e) C = $75+$9 = $84 (the new Inventory carrying cost)
IC = 36/2 * 84 = 1512
TC = 1512 + 1320 = $2862
2862 – 2670 = 192
The cost would rise by $192
--.
Problem 5-4A Computing merchandising amounts and formatting income s.pdf
1. Problem 5-4A Computing merchandising amounts and formatting income statements LO C2, P4
[The following information applies to the questions displayed below.]
On August 31, 2012, merchandise inventory was $28,245. Supplementary records of
merchandising activities for the year ended August 31, 2013, reveal the following itemized costs.
References
Section BreakProblem 5-4A Computing merchandising amounts and formatting income
statements LO C2, P4
2.
value:
0.80 points
Required information
Problem 5-4A Part 1
References
eBook & Resources
WorksheetDifficulty: MediumLearning Objective: 05-P4 Define and prepare multiple-step and
single-step income statements.
Problem 5-4A Part 1Learning Objective: 05-C2 Identify and explain the inventory asset and cost
flows of a merchandising company.
Check my work
3.
value:
0.80 points
Required information
Problem 5-4A Part 2
References
eBook & Resources
WorksheetDifficulty: MediumLearning Objective: 05-P4 Define and prepare multiple-step and
single-step income statements.
Problem 5-4A Part 2Learning Objective: 05-C2 Identify and explain the inventory asset and cost
flows of a merchandising company.
Check my work
2. 4.
value:
0.80 points
Required information
Problem 5-4A Part 3
Prepare a multiple-step income statement that includes separate categories for selling expenses
and for general and administrative expenses.
rev: 01_02_2014_QC_43145
References
eBook & Resources
WorksheetDifficulty: MediumLearning Objective: 05-P4 Define and prepare multiple-step and
single-step income statements.
Problem 5-4A Part 3Learning Objective: 05-C2 Identify and explain the inventory asset and cost
flows of a merchandising company.
Check my work
5.
value:
0.80 points
Required information
Problem 5-4A Part 4
Prepare a single-step income statement that includes these expense categories: cost of goods
sold, selling expenses, and general and administrative expenses.
Valley Company’s adjusted trial balance on August 31, 2013, its fiscal year-end, follows.
Solution
1)Net sales : sales Revenue 239,400
less:sales discount (2663)
sales return and allowance (15800)
net sales 219,937
2)cost of merchandise purchased = Invoice cost of merchandise + freight in -disocunt -
allowances
= 102900+3900-2161-4939
= $ 99,700
![Problem 5-4A Computing merchandising amounts and formatting income statements LO C2, P4
[The following information applies to the questions displayed below.]
On August 31, 2012, merchandise inventory was $28,245. Supplementary records of
merchandising activities for the year ended August 31, 2013, reveal the following itemized costs.
References
Section BreakProblem 5-4A Computing merchandising amounts and formatting income
statements LO C2, P4
2.
value:
0.80 points
Required information
Problem 5-4A Part 1
References
eBook & Resources
WorksheetDifficulty: MediumLearning Objective: 05-P4 Define and prepare multiple-step and
single-step income statements.
Problem 5-4A Part 1Learning Objective: 05-C2 Identify and explain the inventory asset and cost
flows of a merchandising company.
Check my work
3.
value:
0.80 points
Required information
Problem 5-4A Part 2
References
eBook & Resources
WorksheetDifficulty: MediumLearning Objective: 05-P4 Define and prepare multiple-step and
single-step income statements.
Problem 5-4A Part 2Learning Objective: 05-C2 Identify and explain the inventory asset and cost
flows of a merchandising company.
Check my work](https://image.slidesharecdn.com/problem5-4acomputingmerchandisingamountsandformattingincomes-230326050719-91b183ff/85/problem-54a-computing-merchandising-amounts-and-formatting-income-spdf-1-320.jpg)
