Taizhou Products Uses 800 Units of a Product Per Year

question 155

Essay

Taizhou Products uses 800 units of a product per year on a continuous basis. The product has carrying costs of $50 per unit per year and order costs of $300 per order. It takes 30 days to receive a shipment after an order is placed and the firm requires a safety stock of 5 days usage in inventory.
(a) Calculate the economic order quantity (EOQ).
(b) Determine the reorder point.

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Definitions:

Warranty Expense

Costs a company incurs due to servicing or replacing products under warranty.

Expense Warranty Accrual Method

An accounting method where expected future warranty claim costs are estimated and recorded as an expense at the time of sale.

Liability For Warranties

The responsibility of a company to cover costs of addressing defects or repairs under warranty for sold products.