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Question #1

A firm expects to sell 50,000 units of its product annually. It estimates that it costs $2,000 to place an order and that each unit costs $8.00 annually to carry in inventory. It takes 4 days to receive an order once it is placed. Assume that the store is open every day of the year.

- a) How many units should the firm order at a time if it wants to minimize the sum of ordering and carrying costs?

- b) How many orders will it place in a year?

- c) How much will total ordering costs be for the year?

- d) What will its average inventory level (in units) be during the year?

- e) How much will total carrying costs be for the year?

- f) What is its reorder point?

- g) What would you expect to happen to the reorder point if uncertainty is taken into consideration?

Question #2

If a firm is considering implementing a JIT inventory system, list and describe the accounting issues that the firm should consider when making this decision.