Capital Budgeting.pptx
2. How much overhead was applied to production during the year (Ans.pdf
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2. Garden Variety Flower shop uses 750 clay pots a month. The pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 20 percent of cost, and ordering costs are $200 per order. The manager has been using an order size of 1,500 flower pots. There are 4 weeks in each month,12 months a year. a.What is the Economic order quantity (EOQ)? b.What is the total cost associated with EOQ c.If order lead-time is two weeks (i.e., 0.5 month) and the safety stock policy is that SS=50 pots, what is the ROP? d.If the shop remains using the order size of 1500, what is the total annual cost? e.Following d., what additional annual cost is the shop incurring by staying with the order size of 1500? (as opposed to using EOQ) Solution 750 clay pots a month $2 per pot Annual carrying cost per pot is 20% of cost (0.20 * 2$ = 0.4) Ordering cost are: $200 Order size: 1500 flower pots Economic order quantity : Square root of { (2DS) / H} Economic order quantity: Square root of { (2* (750*12) / (0.20*2) )} Economic order quantity = 212.13 What is the total cost associated with EOQ TC = Carrying cost + Ordering Cost TC = (Q / 2) * H + (D/Q)* s TC= (212.13 / 2) * (0.2*2) + ( (750*12) / 212.13)* 200 TC= 42.426 + 8485.362 TC = $8527.78 If order lead-time is two weeks (i.e., 0.5 month) and the safety stock policy is that SS=50 pots, what is the ROP? ROP = d(LT) ROP = (0.5)(50) = 25 If the shop remains using the order size of 1500, what is the total annual cost? TC = Carrying cost + Ordering Cost TC = (Q / 2) * H + (D/Q)* s TC = (1500/2)* (0.2*2) + (750*12) / 1500 ) * 200 TC= 300 + 1200 TC= $ 1500.
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2. How much overhead was applied to production during the year (Ans.pdf
- 2. How much overhead was applied to production during the year? (Answer is not 306,507 even though I thought it would be since that is the Actual hours worked x Predetermined overhead rate) Overhead applied $ 3. Using one or more answers above, what were the total costs assigned to work in process? Total costs assigned $ 4. Mark Barton owns a garage and is contemplating purchasing a tire retreading machine for $26,000. After estimating costs and revenues, Mark projects a net cash flow from the retreading machine of $4,400 annually for 8 years. Mark hopes to earn a return of 8 percent on such investments. What is the present value of the retreading operation? Solution Not complete information on 2 and 3 are available 4 Net present value calculation Here is the annuity value of 8% return for 8 years 5.746639 PV of cash inflow = $4,400 x 5.746639 = $25,285.21 Investment = $26,000 Present value of retreading operation = ($714.7884) 11.080.92592621.16640.85733931.2597120.79383241.3604890.7350351.4693280.68058361.58 68740.6301771.7138240.5834981.850930.540269 5.746639