In inventory management, a decrease in the frequency of ordering will normally

a. increase total carrying costs

b. increase the total ordering costs
c. have no effect on total carrying costs
d. have no effect on total ordering costs

Ans: A
If the frequency of ordering is reduced, the purchaser has to buy more units per order. This will
reduce the ordering costs but wil normally increase the total carrying costs, as the purchaser
has to carry more units in inventory.

Which of the following statements is false:

a. The cost of inventory itself, as well as any quantity discounts lost on inventory
purchases, is directly reflected in the EOQ model
b. A decrease in inventory order costs will decrease the EOQ.
c. An increase in inventory carrying costs will decrease the EOQ.
d. An increase in the variable cost of placing and receiving an order will increase the EOQ.

Ans: A
The EOQ model excludes the actual costs of the inventory item.

Using the EOQ model, Cordon Corporation computed the economic order quantity for one of
the products it sells to be 4000 units. Cordon Corporation maintains safety stock of 300 units.
The quarterly demand for the product is 10,000 units. The order cost is P200 per order. The
purchase price of the product is P2.40. the company sells at a 100% markup. The annual
inventory carrying cost is equal to 25% of the average inventory level.

What is the annual inventory carrying costs?

Ans:

EOQ
Average inventory = + safety stock
2
4000
= +300
2
= 2300 x P2.4 x 25%
= 1380

What is the total inventory order cost per year?

Ans:

答案解析：
Choice "A" is correct. $68,400 net cash flow for the third year.
$90,000 + 6,000 + 9,0005 years = $105,000 tax5 years = $21,000 tax depreciation
 Unit
In year 3: Qty Value Tax Calc Cash Flow
Cash inflow from sales (2,000 × $500) = $1,000,000 $1,000,000
Cash outflow for materials & labor (2,000 × $450) = (900,000) (900,000)
Cash inflow from operations in year 3 100,000 100,000
Less tax
Depreciation expense (21,000)
Taxable income 79,000
Marginal tax rate × 40%
Tax to be paid $31,600 31,600
Net cash flow in year 3
$68,400
after taxes
Alternate Computation:
Cash flow: 1,000,000 − 900,000× (1 − .4) $60,000 After-tax cash flow
Depreciation tax shield: 21,000 × 40% 8,400 Tax shield
$68,400 After-tax cash flow
In year 3, Moore will generate a $100,000 profit from the incremental sales (2000 units × ($500 − $450)). This profit will be
taxed at 40%, so the net after-tax increase in cash flow is $60,000 BEFORE the depreciation tax shield is considered.
Depreciation is not a cash outflow, but it will reduce the amount of tax the company has to pay (by 40% of the depreciation), and
this has an effect on the cash-flow for the company. Depreciation, as calculated above, is $21,000 per year ($105,000 cost of the
machine divided by 5 years). The depreciation tax shield is $8,400 ($21,000 × 40%), so the total after-tax cash flows in year 3 for
the new machine is $60,000 + $8,400 = $68,400.