12 party animals sells stuffed tigers products inc manufactures many different stuff 4309307

12) Party Animals sells stuffed tigers. Products, Inc., manufactures many different stuffed animals. Party Animals orders 10,400 tigers per year, 200 per week, at $10 per tiger. The manufacturer covers all shipping costs. Party Animals earns 12% on its cash investments. The purchase-order lead time is 3 weeks. Party Animals sells 210 tigers per week. The following data are available (based on management's estimates):

Estimated ordering costs per purchase order$10

Estimated insurance, materials handling, breakage,

and so on, per year$3

Actual ordering costs per order$15

What is the economic order quantity using the estimated amounts?

A) 119 stuffed tigers

B) 223 stuffed tigers

C) 273 stuffed tigers

D) 325 stuffed tigers

13) A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager, evaluated on conventional accounting numbers, regards as optimal is considered a(n):

A) problem for the chief financial officer to resolve

B) problem for the performance evaluation system to resolve

C) goal congruence

D) opportunity cost

14) Just-in-time purchasing requires:

A) larger and less frequent purchase orders

B) smaller and less frequent purchase orders

C) smaller and more frequent purchase orders

D) larger and more frequent purchase orders

15) Increases in the carrying cost and decreases in the ordering cost per purchase order result in:

A) smaller EOQ amounts

B) larger EOQ amounts

C) larger relevant total costs

D) smaller relevant total costs

16) The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

17) Relevant opportunity cost of capital is the return forgone by investing capital in inventory rather than elsewhere.

18) Video Boy has one particular product that has an annual demand of 2,000 units. Total manufacturing costs per unit total $20. Ordering costs for the product total $25 per purchase order. Currently, the carrying costs per unit are 25% of manufacturing costs.


Determine the economic manufacturing order quantity.

19) The IBP Grocery orders most of its items in lot sizes of 10 units. Average annual demand per side of beef is 720 units per year. Ordering costs are $25 per order with an average purchasing price of $100. Annual inventory carrying costs are estimated to be 40% of the unit cost.


a.Determine the economic order quantity.

b.Determine the annual cost savings if the shop changes from an order size of 10 units to the economic order quantity.

c.Since the shelf life is limited, the IBP Grocery must keep the inventory moving. Assuming a 360-day year, determine the optimal lot size under each of the following: (1) a 20-day shelf life and (2) a 10-day shelf life.

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