The EOQ minimizes the sum of carrying and setup costs. The EOQ is the amount at which carrying costs are equal to setup casts. Thus, plugging the data into the EOQ formula results in the following: C:\Documents and Settings\usernwz1\Desktop\1.PNG

Thus, if each lot consists of 1,000 units, five production runs per year are needed to meet the 5,000-unit demand. At this level, setup costs will total US $5,000 5 x $1,000). Carrying costs will also equal US $5,000 10 per unit carrying cost average inventory of 500 units).
Accordingly, total costs are minimized at US $10,000. Jed Ryerson Computer Furniture, Inc. RCF) manufactures a line of office computer chairs. The annual demand for the chairs is estimated to be 5,000 units. The annual cost tic. hold one unit in inventory is US $10 per year, and the cost to initiate a production run is US $1,000. There are no computer chairs on hand, and RCF has scheduled four equal production runs of computer chairs for the coming year, the first of which is to be run immediately. RCF has 250 business days per year, sales occur uniformly throughout the year, and production start-up is within one day. RCF is considering using the following formula for determining the economic order quantity EOQ):

If: A = cast to initiate a production run per purchase order D = annual unit demand K = cost of carrying one unit per year

Under the accrual method, the total estimated warranty costs are charged to operating expense in the year of sale. The total estimated warranty cost per unit is US $1,000$250 +$750). In year two, 100 units were sold, so the warranty expense recognized is US $100,000.

The relevant costs of making the motor are direct materials, direct labor, variable manufacturing overhead, rental costs of the special machinery, and rental costs of the new warehouse. The fixed manufacturing overhead and the costs of the current warehouse space are not relevant because they will be incurred regardless of whether the motor is made or bought. Buying the motor will cost US $630,000 30,000 x $21).
Making the motor will cost US $549,000 {[30,000 x $8 DM +$ 4 DL + $3 VOH)] +$54,000 + $45,000}. Hence, making the motor saves US $81,000 $630,000 - $549,000). A manufacturing company is considering a new product for the coming year, which is an electric motor the company can purchase from a reliable vendor for US $21.00 per unit. The alternative is t. manufacture the motor internally. The company has excess capacity to manufacture the 30,000 motors needed in the coming year except for manufacturing space and special machinery. The machinery can be leased for US $45,000 annually. Finished goods warehouse space adjoining the main manufacturing facility, leased for US $39,000 annually, can be converted and used to manufacture the motors. Additional offsite space can be leased at an annual cost of US $54,000 to replace the finished goods warehouse. The estimated unit costs for manufacturing the motors internally, exclusive the leasing costs itemized above, are:

The objectives of financial reporting are concerned with the underlying goals and purposes of accounting. They are to provide information that1) is useful to those making investment and credit decisions, assuming that those individuals have a reasonable understanding of business and economic activities:2) is helpful to current and potential investors and creditors and other users in assessing the amount timing, and uncertainty of future cash flows; and3) discloses economic resources claims to those resources, and the changes therein.

The company will have to borrow US $100,000 in April. which means that interest will have to be paid in May at the rate of 1% per month 12% annual rate). Consequently, interest expense is US $1,000 $100,000 x1%) May sales x 50%) + $50,000 April sales x 50%)]. Disbursements in May $4rt,nrtr! [ 740,000 May payables x 75%) + $40,000 April payables 25%)]. In addition to the May accounts payable disbursements, payroll and other disbursements are US $60,000, bringing total disbursements to US $101,000 $60,000 + $40,000 + $1,000 Thus, disbursements exceed receipts by US $26,000 $101 ,06u $75,000). However, cash has a beginning surplus balance of US $7,500 $100,000 April loan - $92,500 negative cash flow for April). As a result, the company needs to borrow an additional US $18,500 to eliminate its cash deficit. Given the requirement that loans be in US $10,000 increments, the May loan must be for US $20,000. The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a US Collections. 50% of the current month's sales budget and 50% of the previous month's sales budget. $200,000 line of credit with its bank at a 12% annual rate of Accounts Payable Disbursements. 75% of the current month's interest on which borrowings for cash deficits must be made in US$. increments. There is no outstanding balance on the accounts payable budget and 25% of the previous month's accounts payable budget. line of credit loan on April 1. Principal repayments are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans. Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury bills. Raymar intends to maintain a minimum balance of US All other disbursements occur in the month in which they are budgeted.