A Local Furniture Store Is Examining Its Inventory Policy and Considering

question 49

Essay

A local furniture store is examining its inventory policy and considering using an economic order quantity (EOQ) approach for a popular table set that they have had difficulty keeping in stock.They have the following information about the table set:
Annual demand = 3,920 sets
Current order quantity = 80 sets
Carrying cost = $80.00/set/year
Order cost = $200
a.What is the current total annual cost (TC)?
b.What is the EOQ?
c.What is the total annual cost at the EOQ?

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Definitions:

Common-Base Year Value

A method used in economics and financial analysis to adjust values for comparison by fixing the prices of goods and services to a specific base year, neutralizing the effect of inflation.

Accounts Receivable

Funds that customers owe to a company for products or services they have received but have not yet compensated for.

Inventory

The total amount of goods that a company holds, intending to sell them in the normal course of business.

Financing Activities

Transactions that result in changes in the size and composition of the equity capital or borrowings of a company.