Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order$\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$
-If Kel's makes an order (1/12 of annual demand)once per month,what are the relevant total costs?
A)$2085.67
B)$1500
C)$2225.00
D)$3000.00

Question

Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
 Relevant ordering costs per purchase order$\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$
-If Kel's makes an order (1/12 of annual demand)once per month,what are the relevant total costs?
A)$2085.67
B)$1500
C)$2225.00
D)$3000.00

Quizplus · Accepted Answer

First, we need to calculate the Economic Order Quantity (EOQ) using the formula:

EOQ = sqrt((2SD)/H)

Where:

S = annual demand = 172,800
D = weekly demand = 3,322
H = holding cost per unit per year = 0.12 x 0.75 = 0.09

Therefore:

EOQ = sqrt((2 x 172,800 x 3,322)/0.09) = 2,417.99 ≈ 2,418

Since the order size is given as 1/12 of the annual demand, we can calculate the number of orders per year as:

Number of orders per year = Annual demand / Order size = 172,800 / (1/12 x 172,800) = 12

The time between consecutive orders is then:

Time between orders = Time in a year / Number of orders per year = 52 weeks / 12 = 4.33 weeks ≈ 5 weeks (rounded up)

Now we can calculate the total relevant costs, which include ordering costs, holding costs, and purchasing costs.

Ordering costs = (Number of orders per year) x (Order cost per order) = 12 x 75 = 900

Holding costs = (EOQ / 2) x (Holding cost per unit per year) = (2,418 / 2) x 0.09 = 108.81

Purchasing costs = (Annual demand) x (Purchase cost per unit) = 172,800 x 0.75 = 129,600

Total relevant costs = Ordering costs + Holding costs + Purchasing costs = 900 + 108.81 + 129,600 = $130,608.81

Finally, we need to divide the total relevant costs by the annual demand to get the total relevant cost per unit:

Total relevant cost per unit = Total relevant costs / Annual demand = 130,608.81 / 172,800 = 0.75625 ≈ 0.76

Therefore, the best choice is to order once a month (12 times a year) because it gives us the lowest total relevant cost per unit of $0.76.

The answer is (C) $2225.00.

Answer the Following Questions Using the Information Below: Appleby Incorporated $125.00\quad\quad\quad\$ 125.00$125.00

Answer the Following Questions Using the Information Below:
Appleby Incorporated $\quad\quad\quad\$ 125.00$