Problem 1: Assuming a 360-day year, claculate what average investment in inventory would be for a firm, given the following information in each case.
A.) The firm has sales of 600,000, a gross profit margin of 10 percent, and an inventory trunover ratio of 6.
B.) The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
C.) the firm has a cost-of-goods-sold figure of 1.5 million and an inventiry turnover rate of 5.
D.) The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age of inventory of 45 days.
Problem 2: (EOQ calculations)
A downtown bookstore is trying to dertermine the optical order quantity for a popular novel just printed in paperback. The store feels that the book will sell at four times its hardback figures. It would, therefore, sell approximately 3,000 copies in the next year at a price of 1.50. The store buys the book at a wholesales figure of $1. Costs for carrying the book are estimated at $0.10 a copy per year, and it costs $10 to order more books.
A.) Determine the EOQ.
B.) What would be the total costs for ordering the books 1, 4, 5, 19, and 15 times a year?
c.) What questionable assumptions are being made by the EOQ model?