(/365 NPM.(1 T PM.( 1 +(i/365x D) neric . AReceivables +Anventory. Payables g #
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(/365 NPM.(1 T PM.( 1 +(i/365x D) neric . AReceivables +Anventory. Payables g # Chapter 2 Inv COGS/365 cc C DIH + DSO-DPO . A/R Sales/365 DSO COGS/365 Homework Problem Chapter 4: Inventory Management You have heard so much about the just-in-time inventory concept that you have decided to investigate your current inventory system. Assurme a production period of 120 days. 30 TA Your operation requires inventory of 5,000 units of inventory over that period. Inventory is us evenly over the production period. Your current system is to place 4 orders of 1.250 unitsieach. You order and receive the inventory on the same day along with the invoice. Invoice terms are net 15 days) Inventory costs $10 per unit and the orderisetup costs are estimated to be $400 per order. Physical inventory holding costs average about $5 per unit over the production period of 120 days. Order/setup costs and holding costs are paid at the end of the production period You wish to evaluate whether placing 8 orders of 625 results in a lower present value cost 1. If the company's appropriate discount rate is 12 percent, calculate the present value cost of the current inventory policy 2. Using the same discount rate, calculate the present value cost of the alternative 3. Which alternative do you recommend your company choose? Why? 4. Suppose that the alternative inventory policy would increase the chances of ntory policy stocking out. What actions could you take to reduce that risk? How would you revise your NPV analysis to incorporate those actions? 5. npu Is 1241.83 Pay Ordt 1 50o 0 009 329767 1 0 , 0 0032876 7 lo3 11oExplanation / Answer
2)
Altenative inventory policy is 'placing 8 orders of 625 units'
Total Cost of inventory = Purchase cost + Order cost + Holding Cost
= [625 x 4 x 8.8 (12% discount on 10)] + [ 8 times x 400] + [(625x5)/2]
=44,000+3200+1562.50
=$48,762.50
The present value cost of alternate inventory policy is $48,762.50
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