A Company Assembles Microcomputers for Sale to Computer Stores A Using the LFL Method, What Is the Size of Are

question 88

Essay

A company assembles microcomputers for sale to computer stores. They are trying to decide which lot sizing approach to use for developing their MRP schedules: lot-for-lot (LFL), fixed-order quantity (FOQ) using the EOQ approach, or periodic-order quantity (POQ). The setup cost is $1000 per order, the inventory-carrying cost is $2.50 per week per unit, and the annual demand for the computers is 10,000 units. The company is using a 50-week work year and disregarding the effects of initial inventory and safety stock. The estimated net requirements ?? the microcomputers for the next six weeks are:
$\begin{array}{|l|l|l|l|l|l|l|}\hline \text { Week } & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Net Requirements } & 150 & 200 & 50 & 300 & 250 & 100 \\\hline\end{array}$
a. Using the LFL method, what is the size of the production lot for Week 2?
b. What is the total cost using the LFL method?
c. What is the economic order quantity (EOQ)?
d. What is the ending inventory in Week 3 using the EOQ approach?
e. What is the total cost using the EOQ method?
f. What is the periodic-order quantity (POQ)?
g. What is the beginning inventory in Week 4 using the POQ approach?
h. What is the total cost using the POQ method?

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Definitions:

Inventory Shrinkage

The loss of products between procurement and sale, often due to theft, damage, or administrative errors, affecting inventory levels.

Sales Discounts

A reduction in the price of goods or services offered to customers, typically as an incentive to encourage prompt payment.

Normal Debit Balance

Refers to the expected balance of an account based on its classification in the accounting system, where assets and expenses typically have a debit balance.

Sales Discounts

Sales discounts are reductions in price offered to customers as an incentive for early payment or to encourage sales.