Problem 1: Calculate the EOQ if the company is expecting to sell 5,000 units, has a $2 per unit carrying cost, and has a cost of $10 per order. Why should you not use the EOQ without additional consideration in "real life" situations?
Problem 2: If a company is considering buying a new machine for $100,000 that should reduce costs by $80,000 in one year and $50,000 in second year, should they do it if they have a cost of capital of 10%?
Problem 3: A company faces a tax rate of 40% with their division in NZ and a tax rate of 25% in the US. They make and sell 1,000 units. It costs $125 per unit to produce the units in NZ and they can sell them for $300 each in the US.
What transfer price (between $0 and $300) would provide the greatest overall profit? Explain or show.
What transfer price (between $0 and $300) would result in the lowest overall profit?
Explain or show.
Calculate the profit if the transfer price is set at $140 per unit.