FIN427--Corporate Finance II Assignment 2--problem22-6 from Intermediate Financial Management By Eugene F. Brigham & Louis C. Gapinsky Fifth Edition Dryden Press, 1996 For Mr. Mahmudul Haq's class

1. FIN427 (02)
Mahmudul Haq
Samiya Yesmin
11304043
Assignment 2:
Problem 22-6: Miami Manufacturing
S= 1,000,000 units
SS= 10,000 units
PP= $2
TCC/gallon =CC% x PP= $0.4
LT= 10days
F=$2500 (including cleaning & inspection
charge $2000)
a. EOQ=?
EOQ=
= 111803 units
b. Average value of Inventory=
=
= $131803
c. N= No. Of orders per year= S/Q = (1000000/111803)= 8.94 ≈9 times
Total Carrying Cost= CC%*PP*(Q/2)= 0.4*(111803/2) = $22,360.6
Total Ordering Cost= F*N= 2500*8.94= $223500
Total Safety-Stock Cost= CC%*PP*SS= 0.4*10000= $4000
Total Inventory cost= TCC + TOC + TSSC= 22361+22350+4000 = $48711
d. TCC/gallon= CC%*PP
0.4= CC%*2 => CC%=0.4/2= 0.2*100= 20%
e. Frequency=360/N =360/9 =40
As frequency<LT therefore GIT=0
ROP= SS + (LT*UR)-GIT
ROP=
22nd Feb 2014
=37,777.78 gallons
Assignment 2