Consider a Product with a Daily Demand of 400 Units,a

question 60

Essay

Consider a product with a daily demand of 400 units,a setup cost per production run of $100,a monthly holding cost per unit of $2.00,and an annual production rate of 292,000 units.The firm operates and experiences demand 365 days per year.Suppose that management mistakenly used the basic EOQ model to calculate the batch size instead of using the POQ model.How much money per year has that mistake cost the company?

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Definitions:

Pre-acquisition Entries

Pre-acquisition entries are journal entries made to account for the assets, liabilities, and any non-controlling interest of a company acquired in a business combination at the acquisition date.

Consolidated Cash Account

A single cash account that combines the cash balances of a parent company and its subsidiaries to reflect total available cash.

Subsidiary Entities

Companies that are controlled by another company (parent company) through ownership of more than half of the voting power or through other means of control.

Consolidated Share Capital

The total amount of a parent company's share capital together with its subsidiaries, reported as one figure in the consolidated financial statements.