# Jones Corporation Case Study

*Register to read the introduction…*Suppose Jones Corporation in the above problem determined that its annual inventory carrying cost = 18 percent. The item unit cost was as follows:

Item 1= 25.00

Item 2=60.00

Item 3=5.00

Item 4=10.00

Item 5=1.00

Compute the dollar values for the information in the above table; determine the annual inventory carrying cost for each item, and the total annual inventory carrying cost.

Annual Carrying Cost = (Average unit inventory x cost per unit) x (Carrying cost percentage)

Item 1 = (135,000 x $25) x 18% = $607,500

Item 2 = (50,000 x $60) x 18% = $540,000

Item 3 = (91,000 x $5) x 18% = $81,900

Item 4 = (185,000 x $10) x 18% = $333,000

Item 5 = (55,000 x $1) x 18% = $9,900

Total annual inventory carrying cost = $1,572,300

4. Again, using the data for Jones Company in problem 2 and 3, suppose Jones believes that in the upcoming year, the rate of sales expected for each of the five items is as follows:

Item 1=4,000 units per day

Item 2=2,000 units per day

Item 3=15,000 units per day

Item 4=7,000 units per day

Item 5=2,000 units per day

Compute the days of supply for each item.

Days of supply = ending inventory/unit sales per

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A company experiences annual demand of 1,000 units for an item that it purchases. The rate of demand per day is very stable, with very little variation from day to day. The item costs $50 when purchased in quantities less than 100 and $48 for 100 or more. Ordering costs are $40 and the carrying cost is 25 percent. How much should the company buy each time an order is placed?

EOQ= √(2 x 1,000 units/year x $40/order) ÷ ($50/unit x .25) = 80 units

TAC of ordering 80 units

Annual Ordering Cost = $40 x (1,000 units/ 80 units) = $500

Annual Inventory Carry Cost = $50 x 0.25 x (80 units/2) = $500

Annual Product Cost = $50 x 1,000 units = $50,000

Total Cost = $51,000

EOQ at the $48 price

EOQ= √(2 x 1,000 units/year x $40/order) ÷ ($48/unit x .25) = 82 units

TAC of ordering 100 units

Annual Ordering Cost = $40(1,000 units/100 units) = $400

Annual Inventory Carrying Cost = $48 x 0.25 x (100 units /2) = $600

Annual Product Cost = $48 x 1,000 units = $48,000

Total Cost = $49,000

They should buy 200 units at a time so this way they save $2,000

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How many units should the firm order each time? Assuming there is no uncertainty at all about the demand or the lead-time.

EOQ= √(2 x 500 units/year x $20/order) ÷ ($10/unit x .20) = 100 units

b. How many orders will they place in a year?

500 units per year/100 units per order = 5 orders

c. What is the average inventory?

100 units/2 = 50 units

d. What is the annual ordering cost?

$20 x (500/100) = $100

e. What is the annual inventory carrying cost?

$10 x 20% x (100/2) = $100

16. The supplier in the above scenario now decides to offer a volume discount. They will sell the crystal figurines at $8 per unit for orders of 250 units or more. Answer the same set of questions.

a. How many units should the firm order each time? Assuming there is no uncertainty at all about the demand or the lead-time.

EOQ= √(2 x 500 units/year x $20/order) ÷ ($8unit x .20) = 112 units, however since they have to 250 units or more they have to order the min 250 units.

b. How many orders will they place in a year?

500 units per year/250 units per order = 2 orders

c. What is the average inventory?

250 units/2 = 125 units

d. What is the annual ordering cost?

$20 x (500/250) = $40

e. What is the annual inventory carrying cost?

$8 x 20% x (250/2) =