A Jeweller Orders Gems in Lot Sizes of 1,250 Gems

question 24

Essay

A jeweller orders gems in lot sizes of 1,250 gems.The annual demand for emeralds is 6,250 gems.Ordering costs are $200 per order and carrying costs are $10 per unit annually.Required:
a.Determine the economic order quantity.
b.Determine the amount of annual cost savings if the company changes from an order size of 1,250 units to the economic order size.
c.One supplier offers a discount of $2 per unit off the purchase price of orders in lots of 625 units or more.What impact would this have on the EOQ and should the order size be changed?

Identify and learn how various transactions are recorded and reported in manufacturing and inventory accounts.

Understand the concept of overapplied and underapplied manufacturing overhead and its impact on cost accounting.

Identify and record different types of costs (direct, indirect, raw materials, labor) in a job-order costing system.

Calculate the cost of goods manufactured and the cost of goods sold using specific accounting equations.

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Definitions:

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders as dividends, often used for reinvestment.

Overstated

The description of financial statements or figures that have been reported at amounts higher than is factual or realistic.

Understated

Understated refers to financial information that is reported at a figure less than the actual value, inadvertently decreasing net income or asset values.

Replacement Cost

The current market price it would cost to replace an asset with a similar new asset.