# 5. Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at \$2 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are \$20 per order. The manager has been using an order size of 1,500 flower pots. a. What additional annual cost is the shop incurring by staying with this order size

If Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at \$2 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are \$20 per order. The manager has been using an order size of 1,500 flower pots:

• a. What additional annual cost is the shop incurring by staying with this order size will be: \$105.24
• b. What benefit would using the optimal order quantity yield will be 51.63%

Annual demand (D) =\$750 x 12= \$9,000

Ordering cost=\$20 per order

Annual carrying costs(H)=0.30 ×\$2.00 = \$0.60

Order Quantity(Q) = 1,500

Find TC for Q

TC=Q÷2×H + D÷Q × S

TC=1,500÷2 × \$0.60 + \$9,000÷1,500×\$20

TC=\$450+\$120

TC=\$570............. (1)

Now find Qo

Qo=√2DS÷H

Qo=√2×\$9,000×\$20÷0.60

Qo=√600,000

Qo=\$774.596

Qo=\$774.60 (Approximately)

Find TC for Qo

TC=Q÷2×H + D÷Q ×

TC=774.60÷2 × \$0.60 + \$9,000÷774.60×\$20

TC=\$232.38+\$232.38

TC=\$464.76................(2)

Now let determine the additional annual cost

b. Benefit would using the optimal order quantity yield (relative to the order size of 1,500)

Benefit=Qo÷Q

Benefit=\$774.60÷1,500×100

Benefit=51.63%

The benefit is that about 51.63% of the storage space would be needed.

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Explanation:

Monthly demand = 750

Annual demand (D) = Monthly Demand x Number of months in a year

Annual demand (D) = 750 x 12 = 9,000

Cost (C) = \$2.00 each

Annual carrying costs (Cc) = 30 percent of cost

Annual carrying costs (Cc) = 30% of \$2.00 = \$0.60

Ordering costs (Co) = \$20

Current order quantity (Q1) = 1,500

Solution:

(a) Current cost is calculated as,

Current cost = Annual carrying costs + Annual ordering costs

Current cost = [(Quantity / 2) x Carrying cost] + [(Annual demand / Current Quantity) x Ordering cost]

Current cost = [(1500 / 2) x \$0.60] + [(9000 / 1500) x \$20]

Current cost = \$450 + \$120

Current cost = \$570

## Related Questions

A "graduated lease" is a type of lease that is long-term in nature. Here, the lessor/landlord enters into an agreement with the lessee/tenant/occupant that the property that the tenant will be renting is subject to an increase or decrease in the rental fee depending on its market value as the years pass by. So, this means that the rental fee is not stable or fixed, rather it changes with times.

This lease is also called a "graded lease." An increase in rental fee is common for real estates that are being rented while a decrease in rental fee is common for equipment or machinery that are being rented.

The overhead controllable variance is the difference between a. the actual overhead and the overhead applied to production.
c. budgeted overhead based on standard hours allowed and budgeted overhead based on actual hours worked.
d. budgeted overhead based on standard hours allowed and the overhead applied to production.

ExplanatioN:  The controllable variance is  defined as the difference between actual expenses or overhead incurred and the budget  overhead allowance based on standard hours allowed for work done. The variance is unfavorable controllable variance  If the actual  overhead is greater  than the budgeted overhead based on standard hours allowed for work done and is termed favorable controllable variance if the opposite occurs ie actual overhead being less than budgeted overhead based on standard hours allowed for work to be done.

You are depositing \$1,234 in a saving account now and two years from now you deposit another \$2,345 into the same savings account that earns 3.456% annual interest. How much money will you have at the end of 8 years?

4,494.68

Explanation:

Formula

Fc = Ic (1+i) ^ n

Where;

Fc= Final Capital

Ic= Inicial Capital

i= interest rate

n= period

In this particular case:

Fc = 1234 (1+0.034556) ^ 8 + 2345 (1+0.03456) ^ 6

Fc = 4,494.68

onlon Chemicals manufactures paint thinner. Information on the work in process follows: Beginning inventory, 30,000 partially complete gallons. Transferred out, 157,500 gallons. Ending inventory (materials are 10 percent complete; conversion costs are 20 percent complete). Started this month, 180,000 gallons. Required: a. Compute the equivalent units for materials using the weighted-average method. b. Compute the equivalent units for conversion costs using the weighted-average method.

a. 162,750 gallons

b. 168,000 gallons

Explanation:

Step 1 Determine the Units of Closing Work In Process Inventory

Units of Closing Work In Process =  Beginning inventory units + units Started this month - units Transferred out

=  30,000+180,000-157,500

= 52,500

Step 2 Determine the equivalent units for materials

Note : materials are 10 percent complete in Units of Closing Work In Process

Units of Closing Work In Process ( 52,500 ×10%)  = 5,250

Units Transferred out ( 157,500 ×100%)                   =157,500

Total                                                                           =162,750

Step 3 Determine the equivalent units for conversion costs

Note : conversion costs are 20 percent complete in Units of Closing Work In Process

Units of Closing Work In Process ( 52,500 ×20%)  = 10,500

Units Transferred out ( 157,500 ×100%)                   =157,500

Total                                                                            =168,000

The equivalent units for conversion costs using the weighted-average method are 168,000

The equivalent units for materials using the weighted-average method are 162,750

Explanation:

onlon Chemicals

Equivalent units can be calculated by the following

Particulars            Units      % of Completion           Equivalent Units

Mat.  Con. Costs     Materials C. Costs

Transferred out, 157,500           100       100             157,500  157,500

Ending inventory, 52,500          10            20              5250      10,500

Total Equivalent Units                                                162,750   168,000

Working

Ending Inventory= Opening + Started - Transferred Out

Ending Inventory=30,000 +180,000 -157,500 = 52,500 gallons

The equivalent units are calculated by two ways either by adding ending inventory and transferred out units or by adding beginning inventory with units started.

You are the payables accountant for a medium sized electrical contracting company. You are paying bills with purchase discounts but can't take advantage of them because the cash balance in the checking account is low. You approached your boss with a suggestion that the company borrow money at the bank so you can pay the bills in time to take the discounts. Your boss thinks you are a little crazy to recommend borrowing from the bank (currently charging 6% interest) to take advantage of 1-2% discounts. Write him a memorandum laying out your suggestion and justifying your suggested course of action.
Respond to two other student's posts.
Use actual numbers in your memo. For example, if you need to borrow money to pay a \$10,000 bill that offers terms of 2/10, n/30 and the loan's interest rate is 6%.

Memo

To: The Finance Manager

From: The Payables Accountant

Subject: Bank Loan to Pay Suppliers

Date: October 5, 2020

The above subject on our previous discussion refers.

This memo clarifies the advantage of borrowing from our bank the sum of \$100,000 in order to offset the account of our supplier who has offered us the trade terms of 2/10, n/30.

Recall that the bank loan's interest rate is 6% per annum.  If we borrow within the month and repay 30 days after, the interest cost will be \$500 (\$100,000 * 6%/12).

You can compare this to the discount we shall receive from the supplier totaling \$2,000 (\$100,000 * 2%).  We can even extend the bank loan to 2 months, thereby paying a total interest cost of \$1,000 (\$500 * 2).

The implication is that we shall be making some gains by taking advantage of the cash discount.  May you approve the loan based on this clarifications.

Regards,

Tony Ohagwam

Explanation:

This memorandum attempts to justify the request for a bank loan in order to settle the bill of one of our company's suppliers.  It demonstrates the huge financial benefits that are implicit in accepting cash discounts from suppliers.

During 2017 sales on account were \$866000 and collections on account were \$522000. Also during 2017 the company wrote off \$42500 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at \$329000. The change in the cash realizable value from the balance at 12/31/16 to 12/31/17 was a

There is a change of \$27,500 (decrease)

Explanation:

Cash realizable value is the amount of money that the company expects to receive from their accounts receivable after deducting all uncollectible accounts.

First, we must compute the change in gross accounts receivable from the transactions happened during the year.

Sales on account less collections less write-offs = change in Gross accounts receivable.

\$866,000 - (\$522,000 + \$42,500) = \$301,500 (increase in gross accounts receivable)

Finally, we can now compute the change in cash realization value by deducting uncollectible accounts to gross accounts receivable.

\$301,500 - \$329,000 = (\$27,500)