Exhibit 12-2 a Moving Company Purchases Large Cardboard Shipping Boxes from a from a Supplier.The

question 11

Essay

Exhibit 12-2
A moving company purchases large cardboard shipping boxes from a supplier.The company uses approximately 10,000 of these boxes for packing customers' belongings each year,and demand for the boxes is essentially constant throughout the year.The box supplier offers the following pricing schedule,based on the quantity of boxes ordered: The fixed cost of placing an order is $50,and the company's cost of capital is 7% per year.
-An electronics retailer sells 2,500 units of a particular type of DVD player each year,with demand being essentially constant throughout the year.The retailer orders its DVD players from a regional supplier,and each time an order is placed an ordering cost of $100 is incurred.However,the retailer also has the option to make an investment to reduce the ordering costs.For each $2,000 it invests,ordering costs will decrease by 10%,down to a minimum of $30,at which point the cost cannot be further reduced.The unit cost of the each DVD player is $300 and there are no storage costs.Assuming a 7% cost of capital,formulate a Solver model to optimize the retailer's optimal order policy.How much,if any,should be invested in ordering cost reductions and what is the resulting order cost?

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Definitions:

Average Cost

An inventory costing method where the cost of goods sold and ending inventory is determined by taking the weighted average of all units purchased.

Periodic Inventory

A method of inventory accounting where updates to inventory levels are made periodically, often at the end of the fiscal year.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

LIFO

An inventory valuation method standing for Last In, First Out, where the most recently produced or acquired items are the first to be sold.