FIN 540 - Homework Chapter 28

Solution 1:

a. FIFO because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income

Solution 2:

b. If the total amount of cash needed during the year increases by 20% then C* will increase by 20%

Solution 3:

c. 500 loss

Calculation:

Carrying cost under EOQ 5000*0.4/2 1000

Ordering cost under EOQ 50000*100/5000 1000

Total carrying cost ordering cost 2000

Total carrying cost under new offer 10000*0.4/2 2000

Total ordering cost under new offer 50000*100/10000 500

New total cost 2000500 2500

Net loss 2500-2000 500

Solution 4:

E. Yes, the benefits exceeds the cost by 1120

Calculation:

EOQ Sqrt(250000100/0.4) 5000

Carrying cost under EOQ 5000*0.4/2 1000...