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Diagnostic Supplies has expected sales of 84,100 units per year, carrying costs of \(5 per unit, and an ordering cost of \)10 per order.

c. Assume an additional 80 units of inventory will be required as safety stock. What will the new average inventory be? What will the new total carrying cost be?

Short Answer

Expert verified

The average inventory will be 370 units and the carrying cost will be $1,850.

Step by step solution

01

Calculation of average inventory

The average inventory will be 370 units.

Averageinventory=EOQ2+Safetystock=5802+80=370units

02

Carrying cost of inventory

The total carrying cost is $1,850.

Carryingcost=Carryingcostperunit×Averageinventory=$5×370units=$1,850

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Most popular questions from this chapter

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by \(150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket.

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Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.

b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?

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